Trading & Investing During the 2024 US Elections

As the 2024 US elections approach, scheduled for Tuesday, 5 November 2024, investors and traders may be preparing for market volatility. 

This major political event is already generating headlines, with the potential for significant shifts in the financial landscape. 

This article explores the historical effects of elections on the financial markets, examines the specific factors influencing the 2024 elections, and highlights key sectors to watch during this crucial period.

Let’s dive deeper into trading during elections:

Historical Context: Market Reactions to Previous Elections

To understand how the 2024 elections might impact markets, it's useful to review historical patterns. Typically, elections generate short-term turbulence in the stock market due to the uncertainty surrounding their outcomes and potential policy changes. Historically, markets tend to experience increased volatility before elections as investors react to the unpredictability of results, especially if the race is close or uncertain. 

After elections, markets adjust to the policies of the new administration. Although different parties or electoral systems might cause varied short-term reactions, the stock market’s performance usually stabilises over time. Furthermore, globally, major elections can also impact markets by increasing overall political uncertainty.

In addition to stock markets, other sectors like forex and commodities can experience notable shifts. For instance, the US dollar often strengthens during elections due to its status as a safe-haven asset, while other currencies may weaken. Similarly, trade disruptions (like the U.S.-China trade war in 2024) and geopolitical risks can drive up demand for trading commodities and investment metals, affecting their prices.

Moreover, whereas the Federal Reserve is deemed an independent non-governmental body, some believe that the elections can affect the Fed’s interest rates and factors like inflation.

Key Economic Issues Driving the 2024 Election

The 2024 US presidential race between Donald Trump and Kamala Harris presents distinct policy contrasts that could influence market dynamics. 

Here are some key issues to consider when it comes to the Kamala Harris vs. Donald Trump economic policies:

• Donald Trump: Advocates for deregulation, conservative social policies, and an "America First" approach. This includes the Donald Trump tax cuts in 2024 and reduced corporate taxes. His foreign policy reflects scepticism towards international alliances and support for authoritarian leaders. Trump's climate agenda emphasises fossil fuel investments and withdrawal from global agreements, while his healthcare policies lack comprehensive plans. 

• Kamala Harris: Promotes expanded social services. Kamala Harris’ tax policy also promotes middle-class tax cuts and significant investments in renewable energy. She supports a more moderate immigration stance, strengthening international alliances and enhancing democratic institutions. Harris's healthcare focus is on reducing medical debt and improving state collaboration, while her climate policy advocates for significant environmental reforms.

The impact of these differing policy priorities could lead to varying market reactions, particularly in sectors like defence, healthcare, and climate.

The Potential Risks and Opportunities of the US Elections

Elections can introduce both risks and opportunities into the market:

• Risks: Market turbulence may arise due to uncertainty about future policies and regulations. Political gridlock could stall crucial laws and reforms, while heightened instability or unrest might disrupt business operations and investor confidence. Depending on election outcomes, industries may react differently, impacting overall market stability.

• Opportunities: Market volatility during elections may create trading opportunities. For instance, sectors that align with the winning candidate's policies may experience gains. Trump’s re-election might benefit traditional energy, defence, and select tech stocks, while Harris’s victory could positively impact renewable energy stocks, infrastructure, and healthcare sectors.

Sectors to Watch During the 2024 US Elections 

Elections can undoubtedly influence overall market dynamics, and certain sectors are particularly noteworthy in this context. 

Some analysts suggest that if Donald Trump is re-elected, we might see increased market volatility with potential gains in traditional energy, defence, and select tech stocks, driven by his pro-business policies and deregulation efforts. Moreover, one stock could be impacted by Trump’s win, particularly his Trump Media & Technology Group (DJT) company.

Conversely, a Kamala Harris victory could lead to a more stable market environment, impacting renewable energy, infrastructure, and healthcare sectors, reflecting her focus on progressive policies and regulatory reforms.

In other words, each candidate's presidency would steer market movements according to their unique policy priorities and regulatory stances.

Trading Strategies for Election Volatility

While there's no one-size-fits-all method for managing market volatility during US elections, here are some 2024 election trading strategies to consider: 

• Diversifying Your Portfolio: A trader’s assets may be  spreaded  across various sectors and asset classes to potentially reduce risk and mitigate potential losses from any single area impacted by election outcomes. 

• Staying  Informed: Keep up with political news and developments and understand how potential policy changes from different candidates might affect various sectors and a trader’s investment portfolio. 

While these aforementioned election 2024 investment strategies may benefit some, it's crucial to recognise that markets are inherently unpredictable, and significant losses can still occur despite these measures.

Long-Term Investing vs. Short-Term Trading Opportunities

US elections can lead to significant short-term market fluctuations and sector-specific shifts due to the uncertainty and speculation they create. This volatility often presents opportunities for short-term investors who can speculate on short term price changes,  while over the long term, the influence of elections tends to diminish, with broader economic trends and fundamentals playing a more substantial role in shaping investment performance. (Source: Morgan Stanley)

Conclusion

With the 2024 US elections nearing, market volatility may be on many market watchers’ radar. Historically, elections bring short-term market swings due to uncertainty over new policies. Nonetheless, past performance does not reflect future results.

Accordingly, traders and investors should stay alert to any changes. They may also want to consider diversifying their portfolios to manage the risk. 

Moreover, by understanding the potential impacts of each candidate’s policies, traders and investors can better navigate the fluctuations and identify opportunities now and in the future.

FAQs:

When are the US 2024 elections?

The 2024 US elections are expected to take place on 5 November 2024.

Who are the candidates for the 2024 US elections?

Former President Donald Trump is the Republican presidential candidate, while Vice President Kamala Harris is the Democratic contender (after President Joe Biden withdrew from the presidential race).

Which market sectors can be affected by the US elections?

Many market sectors, including stocks, commodities, and forex, can be potentially affected by the US elections.

How can I navigate market volatility during the elections?

To potentially navigate volatility during the US elections, you may want to consider engaging in election-year portfolio diversification, incorporating safe-haven assets, and using risk management tools.