In the United States, investors are struggling to deal with the uncertainty related to inflation, interest rates, and geopolitics, and have prepared for the possible volatility that may accompany the November presidential election.
What does the data from election years show? # US presidential election #
Election years are usually good for the US stock market. Since 1960, the S&P 500 has risen almost every election year. Exceptions were in 2000 and 2008, both of which were affected by the bursting of the internet bubble and the financial crisis, respectively. Recent election cycles look even better. In the past three election years since 2008 (2012, 2016, 2020), the benchmark index has risen at least 10%.
From a narrower perspective, focusing only on the last seven months of an election year yields a similar result. According to data and analysis from the Stock Trader's Almanac, the S&P 500 has risen during this period in 16 out of 18 presidential elections since 1950. The one-year decline was in 2000 when the election results were postponed for 36 days and in 2008.
However, there are reasons why too much uncertainty still exists.
Market experts have begun to warn that the election may go down to the wire, and the outcome may still remain unclear days after the election, although this is unlikely. They pointed out that the election results may be disputed or too close, and mail-in voting is taking longer to count than machine voting.
In the Florida election recount controversy in 2000, the S&P 500 fell more than 4%, the 10-year US Treasury yield fell 52 basis points, and the price of gold rose as investors flocked to safe-haven assets.
The election may end with prolonged disputes or even worse political violence, which is also a possibility that investors are trying to cope with. If this happens, the market is expected to be challenged, especially if it also means that the final result is uncertain.
What is the fear index saying?
Any major event that could affect the economy and disrupt the market would lead to trading fluctuations. Elections are no exception. The futures curve of the Chicago Board Options Exchange Volatility Index (VIX), also known as Wall Street's "Fear Index," shows that traders have begun to prepare for the risk of market volatility before and after the November election this year, a stance that usually only appears later in the year. The reason may be that in this election cycle, voters have gained some understanding of the major candidates earlier than in previous years.
Meanwhile, Goldman Sachs suggests that clients who believe there will be no winner within 15 days should consider holding the VIX contract in November, which represents the implied volatility until mid-December.
(CBOE Volatility Index Futures Data Source: Bloomberg)
However, the strategists of Bank of America pointed out that the index measuring policy uncertainty and the VIX itself are both in a low position, which indicates that the market has not fully reflected the impact of increasing political uncertainty during the election period.
Biden's victory will impact or help the stock market
Biden's positive stance on clean energy means that his re-election is good news for the entire group, including electric vehicle manufacturers, electric vehicle charging network operators (such as ChargePoint Holdings Inc., Beam Global, Blink Charging Co.), suppliers, and battery manufacturers.
It is expected that solar energy stocks will also perform better under Biden's leadership, including First Solar Inc., Sunrun Inc., Enphase Energy Inc., and others.
During the Democratic administration, cannabis stocks usually perform well, and stocks worth watching include Tilray Brands Inc., Canopy Growth Corp., Curaleaf Holdings Inc., and AdvisorShares Pure US Cannabis ETF.
As the Biden administration is expected to maintain strict regulation, impose higher capital requirements on American banks such as Bank of America, JPMorgan Chase & Co., and Goldman Sachs Group, and credit card revenue will continue to face pressure, financial stocks may continue to face risks.
As the current government's "Suppressing Inflation Act" requires reducing drug prices, pharmaceutical companies may also face regulatory pressure.
Which stock sectors will be affected or helped if Trump wins?
If Trump's reelection leads to an escalation in trade tensions, some companies may face impact. Some well-known companies include chip manufacturers such as Nvidia Corp., Broadcom Inc., and Qualcomm Inc., material companies such as Air Products and Chemicals Inc. and Celanese Corp., automotive companies such as Tesla Inc. and BorgWarner Inc., and industrial companies such as Otis Worldwide Corp.
Clean energy and electric vehicle complexes have already benefited from Biden's inflation reduction bill and will continue to receive boosts, but given that Trump has stated he will completely overturn Biden's electric vehicle policy, they are expected to face challenges. Companies at risk if Trump cancels tax credits for buyers will include Tesla Inc., Rivian Automotive Inc., and Lucid Group Inc., as well as battery manufacturers and component suppliers.
Given Trump's vow to lift restrictions on domestic oil production, oil, gas, and traditional energy companies may benefit from pro-oil policies if Trump wins the election. Stocks worth considering include Baker Hughes Co., Exxon Mobil Corp., ConocoPhillips Co., Occidental Petroleum Corp., Williams Cos., Halliburton Co., Devon Energy Corp., and Chevron Corp.
With expected defense spending becoming a clear priority for Republicans, defense stocks are expected to perform better if the Republicans win. Stocks worth considering include Lockheed Martin Corp., Northrop Grumman Corp., and RTX Corp.
Under Trump's leadership, crypto stocks may also benefit, as the former president has increasingly emphasized bitcoin and other digital assets as a way to attract new voters in recent weeks of campaigning. Stocks worth considering include Coinbase Global Inc., Marathon Digital Holdings Inc., Riot Platforms Inc., Cleanspark Inc., MicroStrategy Inc., and Cipher Mining Inc.