The US election – What to look for and how to trade it
BY Chris Andreou
|October 14, 2020On Tuesday 3rd November, the United States will go to the polls to elect the next President. Incumbent Republican President Donald Trump against Democratic former Vice President Joe Biden.
Turn the clock back 4 years to the last election and Donald Trump was very much an unknown in terms of politics. Over the years his political affiliation has changed on a number of occasions, even registering his party affiliation as Democrat in 2001. His confirmation as the Republican candidate shocked many, not least those in his own party. A real estate magnate and occasional reality tv celebrity, he appeared vulnerable to defeat at the hands of career politician Hilary Clinton, herself a former First lady. 4 years on he has become possibly the most polarizing President in American history. He has also guided the nation to record low unemployment levels, consistent economic growth, record stock market gains and low taxation levels. Yet his handling of the Covid pandemic has seen criticism from all quarters with even the choice to wear a mask becoming politicized. He has divided a nation on his calls to re-open the economy. Right wing militia groups have recently plotted to kidnap the Democratic Governor of Michigan as they believed her lockdown orders to be unconstitutional. Behind in the polls, don’t write him off just yet.
Joe Biden is very much the career politician. Most recently he served as Vice President to President Obama. His career has not been without controversy, but he is generally seen as a safe candidate, and is far more of a centralist candidate than say the more left leaning Bernie Sanders. Some say he has just to show up to win this election, although others will question his advanced age. He has made no secret of his desire to raise taxes on the wealthy but still holds a healthy lead in national polls.
So what does this mean for the markets and for traders and investors who want to capitalize on the potential increase in volatility? If we told you the result tomorrow, would you know the best trade to place? 4 years ago when it became evident that Donald Trump was going to win, the knee jerk reaction was to heavily sell the USD and to sell US equity index futures. Within a couple of hours the markets had sharply reversed. Why? The shock of a reality tv star becoming President was soon forgotten and replaced by the realization that a Republican President is generally favored by the financial markets. His expansionary policies were certainly well received over the majority of his 4 years in the White House. Even in the face of a pandemic, US stock markets have rebounded from the initial sell-off to make new highs. Can we expect the same again? And what if Biden wins? Do we get a sell off as Democrats are usually less favored by the markets? Will his policies of higher taxation and wanting to regulate the big tech companies come back to haunt him?
There is no simple answer to this question. Over the next 3 weeks there will be many headlines from both parties. President Trump’s twitter account is likely to go into over drive and the usual negative pre-election politics will stay center stage. But regardless of the end outcome there is no doubt that we will see a marked increase in volatility and a reduction in liquidity. So if you are going to trade, be disciplined. Don’t expect things to trade in a straight line and use those limit and stop loss orders to both protect your account as well as take advantage of sudden moves in your favor. Be very mindful of gaps in markets over a weekend – it only takes one headline, one opinion poll. And if you are waiting for election night itself, then plan your trade. Think carefully exactly how you want to express a Trump win or a Biden victory. Pick your levels carefully and be mindful of how much you are comfortable risking. It’s an exciting time and opportunities will be aplenty.
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Risk disclaimer: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. Never deposit more than you are prepared to lose.The content of this article does not constitute advice or investment recommendation (should not be considered as such) and does not in any way constitute an invitation to acquire any financial instrument or product. TIOmarkets is not liable for any damages that may be caused by individual comments or statements by TIOmarkets analysis and assumes no liability with respect to the completeness and correctness of the content presented. The investor is solely responsible for the risk of his/her investment decisions.
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