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US Presidential Election 2024 | Navigating Markets Effectively
BY TIO Staff
|October 21, 2024The US presidential election is not only a high impact political event but also a potential driver of market volatility. Historically, elections have had a profound impact on financial markets, particularly in the forex, indices and commodities markets. As traders and investors prepare for the upcoming US election on the 5th November 2024, it’s worth recapping on how historical patterns and market sentiment could impact the markets.
Understanding how markets have reacted to past elections and anticipating how they might react under different electoral outcomes, can help you prepare and navigate the markets more effectively.
Keep reading to learn more.
The US Presidential Election 2024: Trump vs Harris
The 2024 US presidential election race features two primary candidates - Donald Trump, the former president and candidate for the Republican Party and Kamala Harris, the current Vice President and Democratic party candidate. Each candidate's economic policies and political ideologies present different implications for the US economy and the financial markets in general. Currency traders in particular will be anticipating how the US Dollar might react to the election outcome.
Donald Trump is known for his pro-business, deregulation, and tax-cutting policies, which are typically well-received by investors in the short to medium term. His administration’s focus on reducing corporate taxes and relaxing regulatory oversight in sectors like energy, manufacturing, and finance historically boosted market confidence and strengthened the US Dollar initially.
Here's how the EURUSD reacted when Donald Trump, a Republican, was elected president on November 8, 2016.
Let's compare this to see how the EURUSD reacted when Joe Biden, a Democrat, was elected president on November 3, 2020.
Kamala Harris has maintained a lead over Donald Trump since announcing her candidacy in late July 2024. According to an ABC news poll published on BBC.co.uk, as of the 21st October 2024 and rounded to the nearest whole percentage, Harris has 48% support. While Trump trails closely behind at 46%, highlighting a competitive race as we approach election day.
Historical Impact of US Elections on Financial Markets
The relationship between US presidential elections and market movements is well documented. Historically, election days are associated with heightened market activity as uncertainty looms over policy changes and future economic conditions. Although market volatility is a common feature, how the market reacts can vary depending on which party wins the presidency.
Here’s a look at how the US Dollar index performed for the year following the day a US president was elected.
| Election date | Party | 12-month USD change (%) |
| 3rd Nov 2020 | Democratic | +0.25% |
| 8th Nov 2016 | Republican | -4.04% |
| 6th Nov 2012 | Democratic | -0.28% |
| 4th Nov 2008 | Democratic | -12.49% |
| 2nd Nov 2004 | Republican | +5.28% |
| 7th Nov 2000 | Republican | +0.52% |
Market Trends Under Republican Administrations
Republican victories have traditionally been seen as favorable for business, and the markets tend to react positively in the short to medium term. The initial surge in volatility is often driven by optimism surrounding tax cuts, deregulation, and pro-growth economic policies.
The table above shows that over the last 20 years, or the last 6 US elections, the US Dollar index has ended positive 67% of the time 12 months after a Republican was elected.
Market Trends Under Democratic Administrations
Democratic presidents, by contrast, often face initial skepticism from the markets, especially due to policies related to increased regulation and social welfare programs. This can lead to short to medium term declines in the markets and the weakening of the USD.
Over the same period indicated in the table above, the US Dollar index ended negative 67% of the time 12 months after a Democratic president was elected.
Markets to Watch for the 2024 US Election
With the 2024 US election on the horizon, traders should focus on three primary markets: US stocks and indices, forex markets (particularly USD pairs), and commodities. These markets can potentially offer opportunities, but also carry heightened risk due to the volatility surrounding the elections.
US Stocks and Indices
US stocks and indices are highly sensitive to election outcomes, especially in sectors that could be directly impacted by a candidate’s policies. During election periods, some traders engage in sector rotation and rebalancing their portfolio, which involves shifting investments into industries expected to benefit from the winning candidate’s agenda.
For instance, if Donald Trump wins, industries such as defense, energy, and manufacturing may experience a boost due to his policies supporting deregulation and military spending. In contrast, a Kamala Harris victory might lead to gains in clean energy, healthcare, and technology sectors over time, as her administration is likely to focus on environmental initiatives, healthcare reform, and tech regulations.
Another strategy that traders employ is news and volatility trading. This involves trying to capitalize on the market’s price swings, which are driven by election-related news and uncertainty. The poll results often cause market volatility, presenting opportunities for short-term trading in sectors like technology, finance, and energy, which tend to react to political developments.
Here are the stock indices annual % change during election years:
| US Presidential election years | S&P 500 | Dow Jones | Nasdaq 100 |
| 2020 | 16.26% | 7.25% | 47.8% |
| 2016 | 9.54% | 13.42% | 5.89% |
| 2012 | 13.4% | 7.26% | 16.82% |
| 2008 | -38.49% | -33.84% | -41.89% |
| 2004 | 8.99% | 3.15% | 10.44% |
| 2000 | -10.14% | -6.18% | -36.84% |
| 1996 | 20.26% | 26.01% | 42.54% |
| 1992 | 4.46% | 4.17% | 8.86% |
| 1988 | 12.4% | 11.85% | 13.54% |
Forex
Forex markets, particularly USD pairs, are an essential focus for traders during US presidential elections. The USD is a global dominant currency and any shifts in the US political landscape can have far-reaching effects. Currencies that are generally considered as safe-haven currencies like the Japanese Yen (JPY) and Swiss Franc (CHF) often appreciate during periods of political uncertainty, while USD strength or weakness hinges on the perceived and actual outcome of the election.
Traders should also pay close attention to interest rate expectations. The election outcome could significantly impact Federal Reserve policies, especially regarding interest rates. A more fiscally conservative administration might signal higher interest rates, which could strengthen the USD. Conversely, a more dovish administration could keep rates low, potentially weakening the dollar and creating opportunities for longer term trading. However with the backdrop of the Fed bringing inflation closer towards its target, and recently reducing interest rates, this scenario might be less likely.
Commodities
Commodities also play a significant role during election cycles, especially due to the potential for changes in government policies that directly affect supply and demand.
- Gold, often viewed as a safe-haven asset, tends to rise in value during periods of political and economic uncertainty. As traders seek refuge from volatility, gold could see some price volatility leading up to the 2024 US election.
- Oil prices are highly susceptible to shifts in energy policy too. A Trump victory could result in policies favoring increased fossil fuel production, which might drive down oil prices. In contrast, a Harris administration could focus on reducing carbon emissions and promoting renewable energy, which could tighten oil supply and push prices higher.
US Elections Scenarios and Strategies
The EUR/USD pair is particularly sensitive to US election outcomes. Depending on the result, traders could witness significant fluctuations in the currency pair, providing ample opportunities as well as risks for trading.
Let's explore some interesting statistics and possible scenarios.
- Over the last 20 years or the past 6 US elections, a Republican was elected 50% of the time and a Democratic president was elected for the other 50% of the time.
- Over the same period of time, both the Republican and Democratic party won double terms in office.
- At the time of this writing, the opinion polls favor Harris, the Democratic candidate to be elected next president of the United States but this can quickly change as we approach election day.
If history is anything to go by, we might see a strengthening of the US Dollar if Trump wins and weakening of the US Dollar if Harris wins. In either case, traders should be prepared for any outcome and anticipate market volatility before, during, and after the US election.
Here are a few things you can do to help navigate the markets during this period.
- Stay informed: Keep a close eye on news, debates and election polls.
- Risk management: Use stop-loss orders to limit risk and manage your market exposure.
- Diversify: Consider trading in alternative markets and hedging to help mitigate risks.
How Will You Trade the US Election?
The 2024 US Presidential election could potentially create volatility in the markets which presents opportunities and risks for traders. By analyzing historical patterns and trends around US election results and understanding the potential implications of the outcome, traders can position themselves to trade in the markets more effectively.
While research has been undertaken to compile the above content, it remains an informational and educational piece only. None of the content provided constitutes any form of investment advice.
TIO Markets UK Limited is a company registered in England and Wales under company number 06592025 and is authorised and regulated by the Financial Conduct Authority FRN: 488900
Risk warning: CFDs and Spreadbets are complex instruments and come with a high risk of losing money rapidly due to leverage. 73% of retail investor accounts lose money when trading CFDs and Spreadbets with this provider. You should consider whether you understand how CFDs and Spreadbets work and whether you can afford to take the high risk of losing your money
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