The 2020 US presidential election day is just around the corner: it is scheduled for Tuesday, November 3. The candidate from the Republican party is the current president, Donald Trump, while the candidate from the Democratic party is Joe Biden. Given the COVID-19 circumstances and many other factors, the outcome of this year’s election is going to be significant and it will be reflected in market movement as well.
Why is it important?
Not every presidential election is followed so closely by the media, but when it comes to political events of the world’s largest economy, it is obvious that they hold major importance for world politics and economics. The US gross domestic product is equal to approximately $20 trillion per year, which is around 18% of the global GDP. Considering this and the fact that the US is a military superpower, the presidential election of the United States of America is seen as one of the most important political events.
Regardless of the election winner, the event will be reflected in market behavior. The elected president will have to grapple with the financial and economic issues resulting from the pandemic as well as those that existed pre-COVID. In order to estimate what might happen to the market after the elections, it is important to look at the candidates’ proposals and what initiatives they offer to implement if they are chosen as the next president.
The Democratic candidate made sure to expand his platform and cover many problems that America is currently facing: jobs, economic recovery, healthcare, racial economic inequality, gun and violence control, housing and so on. Some of his proposals include:
- Raising the minimum wage to $15 per hour
- Protecting the Affordable Care Act and limiting the cost of healthcare coverage to 8.5% of a person’s income
- A $2 trillion plan to fight climate change and prioritize clean energy, favoring green technologies
- Increase the corporate tax rate from 21% to 28%.
- Increase the top tax rate for individuals making more than $518,400 from 37% to 39,6%
- Interest-free loans for suffering due to COVID-19 businesses
- Free four-year public college and university education for students whose families make less than $125,000
- Plans for investing in the economic development of communities of color
- Closer ties with China and repairing ties with NATO
The current United States president’s policies can be described with his “America First” strategy. He is prioritizing American manufacturers, imposing higher tariffs on goods from the European Union and maintaining a strong foreign policy against China. Several of his proposals are:
- A further cut of taxes to keep jobs in America
- Tax breaks for goods produced in America
- A second round of $1,200 stimulus checks for COVID-19 economic relief
- Bringing back one million manufacturing jobs from China
- Creating ten million new jobs in 10 months
- Creating one million new small businesses
During his time as president, Donald Trump has been consistently denying the global warming issue and rolled back around 100 environmental regulations, approving oil and gas drilling in Alaska and weakening automobile fuel efficiency standards. Trump established himself as the “jobs president”, keeping the unemployment rate one of his main concerns.
What might be the potential impact on trading?
The elections traditionally create uncertainty and higher volatility on the market. Depending on the winner, the outcomes in certain fields could be directly opposite. In order to understand the impact on the market during the elections, it is important to do the necessary preparatory work: this may be for instance to decide on the assets you are most interested in and see how the election of one or the other candidates might influence them.
The US dollar as well as US bonds might strengthen for example with Trump’s victory due to his trade war against China and overall political course. With this outcome, it is possible that, for instance, EUR and GBP might decrease against the US official currency. Though these currencies might not necessarily be affected, it is possible due to Trump’s foreign policy, specifically towards the EU. The opposite might happen in case of Biden’s victory, due to his softer policy with China.
Whenever the US dollar drops, there is a possibility that the price of Gold will go up. This might also happen, for instance, in the event of a Biden victory, due to his tax policy and the stimulus to the economy it could provide. On the other hand, it is possible that Oil and related ETFs, for example, drop with Trump’s victory due to the increased supply.
President Trump has focused his politics towards the stock market and in case of his victory the stock market might climb higher. American technology and electric vehicles stocks, for instance, may increase in value regardless of the winner, as both candidates show support for the field.
Of course, there is no way to guarantee a certain outcome and the above information is an example of what might happen depending on the outcome of the elections. Following the candidates’ opinions regarding certain matters might help with the trading strategies each trader chooses to use.