2024-07-16 11:02:23
The US election campaign is coming to a head and the stock markets are reacting sensitively to the political events. The new president could be decisive for the financial markets.
Whether Joe Biden or his challenger Donald Trump wins the US elections in November is a democratic process that depends on the voters. But speculation is already rife about how the duel will affect national and international stock prices. Will the rally that began in October 2022 end abruptly or lead to even higher prices?
With the shooting of Donald Trump, Wall Street must prepare for a new phase of volatility, according to stock market experts, reports “handelsblatt.com”. The probability that the Republican will win the election increased significantly over the weekend, as the betting markets showed. According to Real Clear Politics, the chances of Trump winning the election are 66.2 percent. Joe Biden only has an average of 18 percent.
Experts assume that this will also have an impact on the financial markets. But anyone who believes that Trump will become the next President of the United States of America after the assassination attempt and is counting on a positive reaction from the stock markets could be wrong in two respects.
The well-known stock market saying “political stock markets have short legs” states that geopolitical events and conflicts such as assassinations, wars or bombings lead to great uncertainty among market observers, investors and traders. An analysis by LPL Research for the S&P 500 comes to the conclusion that the stock market loses an average of 4.6 percent 20 days after such an event and that the recovery from this decline takes an average of 43 days.
What remains when a political event is over are the fundamentals of companies and the economic situation in which the country finds itself. Added to this is the interest rate policy of the central banks. All of these measures are influenced by the government’s economic policy, although the interest rate scenario of the US Federal Reserve is unlikely to change much even under a Trump administration.
Anyone who wants to use the past presidential elections to help them project future stock prices will not get a satisfactory answer. Statistics from the investment company Franklin Templeton, which examined the development of the important stock index S&P 500 between 1990 and 2018 in the four years of each election cycle, come to a surprising conclusion: It was the years outside of presidential and midterm elections that brought strong performance – and not the election year itself.
On average, the S&P 500 has only achieved a performance of 5.83 percent per year in the seven presidential elections that fall within this period. Ronald Gehrt, financial expert and analyst at Lynx Broker, has looked at the annual performance of the election years from 1992 to 2020 in detail: The range of price losses or gains ranged from minus 37 percent in the election year 2008 (Barack Obama) to plus 23 percent in the election year 1996 (Bill Clinton).
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The fact alone that the weak years of 2000 and 2008 were not due to elections but to the economy should make it clear that political disputes in the run-up to presidential elections can have both a positive and a negative influence, Gehrt continued. But they are only one of many factors.
Economic experts doubt that the Democrats under Biden and the Republicans under Trump will pursue completely different economic policies. On the contrary: Trump is considered to be business-friendly compared to Biden and other possible Democratic candidates. The oil, gas and coal industries, prison operators and private health insurers are likely to benefit.
Chris Zaccarelli, chief investor at Independent Advisor Alliance, believes a Republican administration will bring lower taxes and less regulation. “That’s usually good for stocks,” Zaccarelli said.
With a majority in the House of Representatives and the Senate, Trump could pursue his plans regarding political and economic decisions unhindered. Investors are more confident that Donald Trump will win the election, says Frank Kelly of Fulcrum Macro Advisors, a political risk consulting firm based in Washington. The Democrats around US President Joe Biden currently hold a narrow majority in the Senate.