Political shifts may sometimes present unprecedented opportunity. Learn how in this article.
When elections are looming, politics take the center stage. It’s hard for anyone to ignore the buzz, especially the US elections. These events can really shake up the global markets, creating some exciting opportunities for traders.
Case point: Here’s how much you’d make in the S&P 500 if you invested since Biden took office
If you had invested $1,000 in the S&P 500 when Joe Biden became president in 2020, your investment would have increased by about 23.7% by now. During Trump’s presidency, the S&P 500 had higher average yearly gains of 14.5%, with a total increase of around 67% over his four years in office.
This shows there’s money to be made during these uncertain times.
As the 2024 presidential race heats up, you might want to keep a close eye on Trump administration’s Dollar Devaluation plans. Plans to devalue the U.S. dollar by pressuring other countries to adjust their currency values represent the start of a trade war.
What are the implications? We can’t predict the future, but we can speculate.
The markets can be unpredictable: With the latest sticky US inflation numbers and rising tensions in the Middle East, the idea of ‘devaluing’ the dollar is bound to shake up trust in it as a reserve currency, triggering global financial market volatility and boosting inflation.
The Fed’s future: If the Federal Reserve lowers interest rates in 2024, Trump may interpret it as the deep state aiding Biden. And if Trump gets re-elected, he’s unlikely to retain Jerome Powell as Federal Reserve chairman after his term ends in 2026. It’s hard to predict what this will mean for the independence of US monetary policy.
You might also be interested to see: U.S. Dollar Responds to Fed Chair Powell’s Hawkish Stance and Rising Treasury Yields
Geopolitical risks on the rise: Trump is threatening a 10% across the board tariff and 60% on China. Such aggressive trade tactics could escalate geopolitical tensions, particularly with countries targeted for currency adjustments.
A mammoth crash ahead?: Biden’s got 2 policy proposals that might make Wall Street and investors start eyeing the exits. One of them? He’s talking about quadrupling the share buyback tax to 4%. Now, if that happens, companies will think twice about buying back their own shares, which could put a damper on earnings multiples, especially when stocks are already riding high.
Adverse conditions for Dow, S&P 500, and Nasdaq Composite: Another thing that might throw the Dow, S&P 500, and Nasdaq Composite for a loop is if they decide to hike up the peak marginal corporate tax rate from 21% to 28%, along with bumping the corporate alternative minimum tax rate from 15% to 21%.
How to trade during election periods (Irrespective of country, these strategies work wonders!)
Some see politics as noise to block out; savvy traders see it as an edge to exploit.
Regardless of the election decision, your goal is to make prudent, profitable trading decisions.
Nobody knows for sure where the markets could go next, but there are steps you can take to be prepared for what’s to come and protect your trades.
Don’t put all your eggs in one basket! Diversify.
Given the increased volatility and uncertainty in currency markets, traders should consider diversifying their portfolios to spread risk across different currencies and assets.
History repeats itself, so do market patterns during election cycles.
According to the presidential election cycle theory, the markets typically thrive during the latter half of a presidential term, as the sitting president ramps up efforts to stimulate the economy in hopes of securing another term in office.The stock market and global currencies could see similar price swings just like they did in previous US elections. So keep your eyes peeled on the market patterns.
Stay informed, stay in the know
Keeping tabs on market news and the economic calendar is key for traders…but that doesn’t mean you have to be glued to your trading desk all day. Download the VT Markets app to get real-time updates anytime, anywhere.
Also, using derivatives like CFDs to make moves in the market could give you an upper edge.
You don’t need to own the underlying assets, you capitalise by purely speculating.
In volatile markets, where prices can quickly change direction—you can also access a wide range of markets, from forex to precious metals, taking advantage of changing news and political shifts.
It takes less than 5 minutes to open your CFD trading account here.
If the election years and economic outlook are making you nervous, here are 4 reasons why traders flock to safe-haven gold during global political tensions.
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