U.S. elections are known for creating market volatility as investors react to policy uncertainties tied to each candidate’s platform and the broader economic landscape.
Initially anticipated as a contest between Joe Biden and Donald Trump, the 2024 race took a turn with Biden’s withdrawal and endorsement of Kamala Harris as the Democratic nominee.
While election outcomes often cause short-term market fluctuations, historical data indicates that these impacts are less significant on long-term trends than commonly assumed.
However, the election’s conclusion brings clarity, allowing traders to form strategies without the unpredictability that elections typically inject into markets.
Potential Impacts on Forex
The U.S. election outcome provides a framework for assessing how the winning party’s policies could affect the economy and potentially influence the Federal Reserve’s monetary approach.
With no clear frontrunner in current polls, the race remains close, though recent sentiment hints at markets leaning toward a Trump victory. For many investors, however, it’s still too close to call, setting the stage for considerable market reactions once results are announced.
The U.S. election also holds major implications for the forex market, particularly regarding trade policy, fiscal spending, and interest rates. A divided government is likely, with the president primarily overseeing trade policy, which can have a direct impact on currency fluctuations.
Depending on the election result, the dollar’s trajectory may shift, affecting global currencies and pairs like EUR/USD. However, it’s worth noting that past trends aren’t guaranteed indicators of future movements.
Markets in a Democrat Victory
A Democratic victory, especially one involving policies aligned with the current Biden administration, would likely have a mix of short and long-term impacts on financial markets, with shifts in certain sectors based on policy expectations.
USD
A Kamala Harris win would likely continue the economic policies of the Biden administration. This scenario could weaken the U.S. dollar due to lower fiscal expansion and declining inflation. With real interest rates falling, the dollar could face downward pressure, benefitting other currencies against the greenback.
Stock Market
A Kamala Harris presidency would likely extend Biden’s policies, boosting sectors tied to clean energy and electric vehicles, such as Lucid, Rivian, and solar energy companies like NextEra and First Solar.
Her support for ambitious climate policies, including a potential fracking ban and expanded EV infrastructure, may help drive renewable energy growth.
In healthcare, Harris could push for Medicare drug price negotiations, possibly pressuring pharmaceutical firms while benefiting healthcare providers like UnitedHealth and CVS Health.
Harris’ proactive approach to AI regulation could introduce some uncertainty for AI-focused stocks like Nvidia and Palantir, as further regulations could impact growth.
Infrastructure spending would likely increase under her administration, prioritizing green energy, transportation, and broadband, benefiting companies such as Caterpillar, Vulcan Materials, and Nucor involved in climate-conscious and modernization projects.
Commodities
In addition to decreasing dependency on fossil fuels like coal and oil, a Kamala Harris election victory may increase demand for commodities like copper, lithium, and cobalt that are used in renewable energy.
The demand for industrial metals like copper, aluminium, and steel could see an increase because of her infrastructure plans. Corn and soybeans are examples of agricultural commodities that may be impacted by changes in trade policies and environmental regulations.
Markets in a Republication Victory
A Republican victory could significantly impact financial markets through policy shifts in trade, energy, finance, and other key sectors.
USD
A Republican victory, with Donald Trump as president, would likely lead to more aggressive trade policies, such as increased tariffs. This could initially strengthen the U.S. dollar due to higher inflation and rising interest rates.
However, the dollar’s strength may be short-lived, as longer-term concerns over fiscal expansion and global economic tensions could reverse this trend, allowing the euro to regain some ground later in the election cycle.
Stock Market
A second term for Trump is expected to have significant effects across various sectors.
In the energy sector, his administration would likely prioritize increasing domestic oil and gas production, benefiting companies like Exxon Mobil, Chevron, and Baker Hughes.
However, while this could boost stock prices in the short term, increased production may ultimately lead to lower crude oil prices, potentially tempering long-term gains for energy stocks.
Meanwhile, defense stocks are expected to benefit due to favorable spending policies.
In finance, deregulation measures could positively impact banks like JPMorgan Chase and Bank of America, enhancing their profitability.
The technology sector may face mixed outcomes. While potential trade tensions with China could negatively affect big tech stocks, deregulation and corporate tax cuts could benefit firms with strong domestic operations.
In the automotive industry, companies with a solid domestic market presence, like Ford and General Motors, are likely to perform well, while Tesla may see gains due to Elon Musk’s support for Trump’s campaign in the electric vehicle market.
Commodities
A Trump re-election might favor traditional fossil fuels through deregulation and support domestic production, potentially increasing the supply and lowering prices.
His policies could also drive demand for industrial metals and influence agricultural exports through trade agreements.
