What to expect for stocks, yields and US dollar after US presidential election
With the US presidential election too close to call, here's what traders and investors need to know about potential impacts on US stocks, bonds and greenback.
Comparing 2024 election scenarios to 2016
The 2024 election presents distinct parallels to 2016's market dynamics, though with crucial differences. Trading platforms will likely see heightened activity as volatility increases.
Historical data from 2016 shows markets initially reacted strongly to Trump's victory, with the S&P 500 gaining over 6% in the month following the election. Similar volatility could emerge in 2024 but perhaps to a lesser extent as US equity investors are already heavily invested.
Positions in US equity futures by Asset Managers
A Trump victory might trigger an initial surge in both US equities and the US dollar, as investors price in expectations of business-friendly policies. However, the "buy the rumour, sell the fact" phenomenon could limit gains or might even lead to a drop in US equity markets from their current lofty heights.
Key US equity index technical levels to watch
A rise above the late October peak would almost certainly lead to new record highs being hit whereas a fall through the early October lows could provoke a downward correction.
When looking at the NASDAQ 100, these levels are the 20,600 mark that needs to be watched on the upside, as a rise above it would almost certainly lead to the July all-time high at 20,690 being exceeded.
The flip side would be a fall through the early October low at 19,623 which may trigger a sell-off, perhaps as far as the 200 day simple moving average (SMA) and the September trough at 18,847-to-18,401.
NASDAQ 100 daily candlestick chart
For the S&P 500, the levels to watch are the 5,878 October record high, a rise above which would target the psychological 6,000 mark, and the early October low at 5,674. Failure there may put the September low and one-year tentative uptrend line at 5,454-to-5,403 on the map.
Key US Dollar Index technical levels to watch
The outcome's impact on forex trading could be significant, particularly for major currency pairs against the US dollar as a Trump victory is likely to lead to the greenback strengthening.
The US Dollar Index, which is currently oscillating around the 200-day SMA at 103.65, could rise all the way to its 105.80 June peak if a rise above the October high and the May-to-November tentative downtrend line at 104.51-to-104.61 were to occur after the US presidential election.
US Dollar Index daily candlestick chart
Any setback in the greenback, if Kamala Harris were to become the first woman 47th president of the United States, is likely to be short-lived as fundamental data and central bank monetary policy is expected to become more relevant again. Nonetheless, a slip in the greenback may still take it towards the early August low and early September high at 101.97-to-101.46.
Impact on US Treasury yields
US Treasury yields are, beyond some potential short-term jitters around the US presidential election, expected to remain on their upward trajectory with traders and investors focusing on the Federal Reserve’s (Fed) monetary policy rather than the US election.
The US 10-year Treasury yield, which is currently trading in four-month highs, has the 10 June and 1 July highs at 4.48%-to-4.49% in its sights, a rise above which would likely lead to a further rise towards the April peak at 4.74%.
The 200-day SMA at 4.19% currently offers support alongside the breached 2024 tentative downtrend line which now, because of inverse polarity, is acting as a support line.
US 10-Year Treasury Yield daily candlestick chart
While no fall in the US 10-year Treasury yield to below its mid-October low at 4.00% occurs, the medium-term uptrend remains intact.
Market implications of a Trump victory
Trump's potential return to office could reinvigorate his "America First" economic agenda. Commodity trading may see increased activity as tariffs affect global supply chains.
Protectionist policies could pressure the Mexican peso and Canadian dollar, especially if United States–Mexico–Canada Agreement (USMCA) faces renegotiation. This might create opportunities for forex traders.
The prospect of increased tariffs could boost inflation expectations, potentially benefiting gold trading as investors seek inflation hedges.
US domestic-focused companies might outperform multinational corporations, creating divergent opportunities in share trading.
Harris victory scenario analysis
A Harris win could initially pressure US equities and the dollar as markets adjust to potential policy shifts. Online trading volumes and volatility might spike during this period.
Democratic policies typically favour increased regulation and corporate taxation, which could impact specific sectors differently. Healthcare and renewable energy might benefit, while traditional energy and financial sectors could face headwinds.
Emerging market currencies could strengthen against the dollar as international trade tensions ease. This might present opportunities for traders using spread betting.
Cryptocurrency markets might face increased scrutiny under a Democratic administration, potentially affecting digital asset valuations and trading patterns.
Federal Reserve's role in market reactions and election uncertainty
The Fed's monetary policy stance will remain crucial regardless of the election outcome. CFD trading could offer ways to position for rate decisions.
A contested election result could prolong market uncertainty, potentially leading to increased safe-haven flows. This might benefit traditional safe-haven assets like spot gold and the Swiss franc.
The Fed's independence could face different levels of political pressure depending on the victor, potentially influencing market expectations for interest rates and monetary policy.
Market volatility might create opportunities for traders using various instruments to implement their strategies.
Trading strategies for post-US presidential election
Here's how to approach trading around the US election result:
- Research potential market impacts and identify key sectors
- Choose whether you want to trade or invest
- Open an account with us
- Monitor markets closely before and as the initial US election results come out
- Place your trades according to your strategy
Consider using stop losses to manage risk during potentially volatile trading conditions. The US presidential election could create sudden price movements, especially if the election result isn’t known for several days.
Risk management becomes particularly important during major events such as the US election. Position sizing, diversification and buying options can help protect against unexpected outcomes.
A balanced approach to trading different asset classes might help capture opportunities while managing exposure.
Long-term investment considerations
Potential changes to US spending, infrastructure investments and regulation could affect investment strategies. Investors might need to review their portfolios in light of new policies being introduced by the 47th US president.
This information has been prepared by IG, a trading name of IG Australia Pty Ltd. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.
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