​​How could the 2024 US election affect financial markets?​

Election run-up and market movements

​As the US election draws near, multiple asset classes are showing substantial shifts in anticipation of potential outcomes. For example, Bitcoin has surged beyond the $70,000.00 mark, while the USD/MXN pair is approaching a breakout above 20.00, nearing yearly highs at 20.23.

Meanwhile, US stock markets hover close to all-time highs. This price action reflects market sentiment favouring a potential Trump victory, with betting markets adjusting to higher odds of his win. Some analysts suggest that this Trump-driven optimism might be somewhat premature, potentially setting up markets for recalibration if Harris narrows the polling gap.

​Election Day reactions and comparisons to 2016

​Comparing the potential 2024 election outcomes to the 2016 contest between Trump and Clinton provides some insight. A Trump win could prompt a surge in both the US dollar and equities, reflecting investor optimism for a business-friendly environment.

Yet, a 'buy the rumour, sell the news' reaction could temper gains, especially if early optimism gives way to profit-taking shortly after Election Day.

• ​Stocks: regardless of which party controls Congress, stocks might rally due to fiscal and pro-business policies. However, a 'red wave' (a Republican-controlled Congress) would likely amplify gains in US equities and strengthen the dollar, with expectations for renewed tariffs and tax reforms
• ​US dollar strength: should Trump prevail, the US dollar could maintain its rally, driven by tariff expectations and potential risk aversion within equity markets. In contrast, if Harris wins, immediate downside reactions in both the dollar and equities are probable. Additionally, if the results are contested, prolonged uncertainty may intensify equity sell-offs and eventually trigger a dollar pullback as economic stability becomes uncertain.

​Market sentiment on Trump and Harris wins

​The contrasting economic agendas between Trump and Harris introduce different market reactions:

​Trump win scenarios

• ​Protectionism and trade policies: analysts anticipate Trump would intensify tariffs and border controls, with policies favouring domestic manufacturing. This could pressure currencies like the Mexican peso (MXN) and Canadian dollar (CAD), especially if the US-Mexico-Canada Agreement (USMCA) faces renegotiation
• ​Inflation and commodities: increased tariffs might stoke inflation, keeping gold, silver, and other commodities high as hedges against inflationary pressure
• ​Deflationary short-term effects: some analysts predict a Trump victory could initially deflate asset values in sectors facing regulatory cuts, aiming to streamline government expenditures by up to $2 trillion per year
• ​Long-term uncertainty: while a Trump victory might drive short-term optimism in equities and the dollar, long-term consequences of intensified protectionism could negatively impact global US firms reliant on international trade.

​Harris win scenarios

• ​Status quo policies: A Harris win would likely continue many policies of the previous Democratic administration, creating a 'status quo' environment for markets to quickly stabilise and focus on Federal Reserve (Fed) actions and economic fundamentals
• ​Equities and US dollar weakness: a Harris victory could initiate a downside reaction in equities and a weakening of the dollar, especially if the win is contested and markets remain volatile in prolonged uncertainty. Over time, stocks may recover, with risk assets rallying, while the dollar may soften as the administration focuses on fiscal stimulus over tariffs
• ​Crypto and emerging markets: a Harris administration may exert pressure on cryptocurrencies, given Democrats’ historically cautious stance toward crypto regulation. Emerging markets (EM) currencies could recover, regaining strength against the US dollar as international trade policies stabilise.

​Post-election analysis and strategic insights

​Post-election, markets are expected to settle back to fundamentals, with opportunities arising from potential overextensions. Notably, the Fed’s ongoing rate adjustments remain a critical influence on markets beyond election-driven sentiment. Here are some perspectives:

• ​Short-term volatility: election night and the subsequent days promise heightened volatility across markets. Position sizing and careful trade management will be essential
• ​Support and resistance levels: support and resistance levels are crucial in equity markets as these levels have not seen significant sell-offs in recent months. For example, key levels like S&P 500 support at 5700 and Dow Jones support at 41,510 reflect areas that, if breached, might signal broader market adjustments
• ​Trading fundamentals over politics: despite potential policy shifts, the election’s longer-term impact on markets will largely hinge on economic data and the Fed’s policy direction. As noted, politics is transient, but economic fundamentals, such as jobs data and inflation, will guide markets day-to-day.

​Short-term volatility battles long-term drivers

​In summary, whether a 'red wave' or 'blue ripple', the election will likely produce short-term trading opportunities across asset classes. Yet, it’s the fundamentals - interest rates, fiscal policy, and trade dynamics - that will ultimately drive sustainable market direction in the months following the election. Keeping emotions separate from strategy, monitoring technical levels, and responding to evolving economic indicators will be essential for navigating post-election market landscapes.

​For more on the US election, please visit our US election page