Market Preview: US Election Outcome
James Chen, CMT November 8, 2016 1:03 PM
Projected market reactions in the immediate aftermath of tonight’s election outcome appear rather clear, but further down the road as the victor prepares to take office becomes significantly murkier. In the past several weeks, we have already gained a somewhat well-defined view of how markets are likely to react directly after a win by either candidate.
Immediately after a Clinton win, which is the more expected scenario, equities and the US dollar should be boosted as Trump-driven uncertainty would be eliminated for both investors and the Federal Reserve. Clinton’s image of status quo stability should foster more initial confidence in the highly risk-averse equity markets, while providing the perception of market stability that the Fed will need in order to raise interest rates in December. At the same time, this relative stability for stocks and the dollar, along with a higher potential for a near-term Fed rate hike, should pressure gold prices further.
But that would only be the likely initial market reaction to a Clinton win. Although Clinton may currently represent more stability for the markets when compared to Trump, many of her policy stances are seen as unfriendly to Wall Street and big business. This includes heavily increased financial regulations as well as generally higher penalties, taxes, and limitations on banks and large corporations. Ultimately, these positions could help drag down markets, including both equities and the dollar, in a Clinton Administration.
In the opposite scenario of a surprise upset by Trump tonight, the immediate market reaction is likely to be a rapid dive for stocks and the US dollar as uncertainty for investors and the Fed will have been magnified. This uncertainty should also translate into a quick surge for safe-haven gold.
Again, however, an unexpected Trump victory would likely have different consequences going forward. With Trump’s key policy stances on financial de-regulation, dramatically lower corporate taxes, and a focus on US industrial growth, equity markets and the dollar could rise and strengthen after the initial uncertainty wears off. In this event, gold would likely be pressured further. A big caveat here, however, lies in how long it might take for the uncertainty and unpredictability surrounding Trump to diminish.
The bottom line for the markets is that the outcome of tonight’s election is expected to trigger certain immediate reactions as noted above, but whether these reactions are sustainable is an entirely different story. Whichever candidate wins, however, one thing is almost assured – markets will move substantially late tonight, tomorrow, and likely for the rest of the week.
Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.
Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.