Traders Look to Politics for Stock Market Clues

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Biden vs Trump 2020

From foreign policy to emergency response, USA Forex brokers eye political candidates and their platforms for possible clues about upcoming market trends post election. Pollsters still expect the possibility of a Blue wave, with the Democrats winning the presidency, Congress, and the Senate.

As of publication, US election polling shows former Vice President Joe Biden enjoying a comfortable lead over Donald Trump, averaging a steady 8-point lead over the last three months. However, Hillary Clinton also polled well in the 2016 presidential election before Trump beat her with a slight edge in the electoral college vote. History has shown that you can’t count President Trump out, despite what the polls suggest. And the very latest polls in late October and early November show that President Trump is gaining on Biden, and the election will be determined by a few very important swing states where Biden will have to tip the result from a Trump majority in 2016 and back to Democrat control in 2020. The 2020 election is probably the most important US election in generations and the effects and ramifications of it will be felt far outside the countries borders.

Let’s look at what type of economic climate the average American Forex and Stock traders may expect under a second Trump term or Biden’s first presidential term.

US election 2020

Democratic Wave

If Biden wins, the Democrats retain the House, and the party flips enough seats to control the Senate, and legislative and executive bodies will align. Democrats have been negotiating for months with Republicans to pass a multi-trillion-dollar second stimulus infusion for the economy. If polls are accurate and the Dems take all the branches of government, there’s no stopping the Democratic agenda.

It’s possible that increasing spending may also increase inflation. Market indicators, such as a higher gold price, lower trending dollar, and stock recovery, paint the picture that traders are expecting the Democrats to increase spending, sparking a higher GDP and inflation. This is good news for some US stocks, silver and gold commodities, and some foreign currencies. However, inflation is problematic for other assets, like the US dollar, Swiss Franc, and other traditionally safe currencies. Inflation may adversely affect bond investments, such as utilities, and other stock prices may fall.

Biden Harris 2020

These assumptions are based upon how current online forex trading indicates what traders expect may occur. It is not an absolute certainty that Democrats will increase spending or that if Biden wins, inflation is inevitable. Markets are fluid and unpredictable, even for those who are good at reading the market climate.

Here’s a graph of the historic USD Inflation since 1635, and as you can see it has been fairly stable in the last 35 years, despite many global upheavals in the markets. So, the risk of inflation which some commenters tout in relation to the US election seems highly exaggerated. The USD might take a small hit when the results come in, and if the election results are contested, but if the USA forex brokers do not panic and keep their cool, wait and see it should all even out very quickly. The USD is a strong currency even if the politics are not.

Source: Annual Rate, the Bureau of Labor Statistics CPI
Source: Annual Rate, the Bureau of Labor Statistics CPI

It’s also possible that a Biden presidential administration will make it a priority to preserve some Obama-era economic policies. President Obama’s administration created more than 10 million jobs. Entering office in the depth of a recession, the administration increased taxes on high earning Americans to support its signature health care legislation. The administration also moved to decrease income inequality and the budget deficit. While Biden is running on his own platform, he’s made it clear that he will protect the Affordable Care Act, also known as Obamacare. Biden has also committed to rolling back tax cuts for high-income Americans.

Economic Outlook

If President Trump wins in November, Americans can expect more of the same economic decisions from his administration, plus some key target goals, including creating 10 million jobs and supporting the creation of 1 million small businesses. Working in tandem with the Department of Treasury, Trump is boosting take-home pay with tax deferments, using tax incentives and penalties to keep jobs in America, cutting taxes to raise profits for corporations. If successful, the latter initiative is especially important for online forex trading, because higher corporate profits are favorable for stocks.

In his first term, Trump made defense spending a bedrock goal. He’s promising to expand support for the military if re-elected. The president is also stating he will throw support behind technological infrastructure and innovation, space programs and wireless internet. His plan for the wireless internet is a plan to create a nationwide internet network that is outside the control of the tech giants, but not stating who exactly will be in control of this program. It is said that “It said the network should be built by the government and leased to wireless providers like AT&T and Verizon.” There have been many different statements from the White House on this topic since 5G has spawned many conspiracy theories so it remains to see what solution President Trump will go for should he win a second term. But there is no doubt that should he achieve this goal, it will boost US tech stocks in the next years.

Trump Pence 2020

The tech connection

Given the president’s acrimonious relationship with tech firms, such as Amazon, Microsoft, Facebook, Google, and Twitter, it’s possible that global technology firms may face antitrust challenges, if Trump wins another presidential term. Even if he does come after these companies with anti-trust cases, it should not affect these companies too much when it comes to value in the stock markets. Quite simply because the average Joe will still be using their services, and all the companies mentioned above expect growth over the next years. Also, these companies are global, with Headquarters in the US. So pushing them too far the White House runs the risk of pushing them out and to shift their global headquarters to other countries and this would damage the US economy far more than anything else, so we don’t expect much other than angry tweets and blustering towards these companies. The Congress and Senate have already had hearings on these companies, and nothing has come of them so far other than their respective CEOs having to spend a few hours in front of Senators and Congressmen while justifying their business models.

Corporate Focus vs Climate Focus

President Trump comes from the corporate world, and he is lenient towards them. Maybe more so than a Democrat President would be. Trump’s corporate focus also includes supporting energy companies. Cuts in environmental regulations are meant to boost short-term profit for established energy companies. In contrast, Biden’s platform supports climate initiatives and green energy. It’s an agenda item that’s good for the environment. At the same time, environmental regulations are often costly for energy companies. Environmental activists believe the big energy conglomerates can afford tighter environmental restrictions. However, the Trump administration is taking the chance that helping energy firms to post bigger profits will boost the energy sector and stock prices, in a bid to help the economy overall.

Should Trump get a second term, investing in American energy companies looks like a good bet, although one you should always keep a very close eye on since it is closely tied to what happens on the global scene when it comes to climate and the use of sustainable energy.

Emergency Response To Covid-19

It’s the Covid-19 pandemic response that may come to define the Trump presidency. Forced to shut down the economy to save lives, businesses all over the United States shut their doors, causing a virtual halt in the economy, and necessitating a stimulus package to help financially support businesses and individual citizens. While many states are opening the economies with enhanced protective measures, the politics surrounding the virus is proving to have its own effect on the market. Trump’s words and speeches are often catalysts for drastic changes in stock prices, as traders try to surmise the outcome based upon publicly available information. But since he also often walks his statements back, almost as fast as he makes them his Presidency has made the markets volatile, but with very few long term damages.

Below you can see the Euro Dollar Exchange Rate (EUR USD) over the last 5 years, covering the entirety of President Trumps time in the White House. This graph is accurate up to November 2nd 2020 – the day BEFORE the 2020 election.

euro-dollar-exchange-rate-historical-chart-2020-11-02-macrotrends
Euro Dollar Exchange Rate (EUR USD) – Historical Chart 2015 – 2020

With Biden surging in the polls in spring and summer and early fall, his plans also affect the markets and USD currency pairs. Traders may expect a Biden presidency, because of current polling that puts the former Vice President in a good position to win. Biden’s plan includes emergency leave for those whose health is affected by the virus and a promise to spend “whatever it takes” to meet the public’s health requirements and to beat the challenges from the economic fallout. Whatever it takes, includes expanding testing sites and emergency response, according to the candidate’s website.

Foreign Relations

As chairman of the US Senate’s Foreign Relations Committee, Biden holds strong foreign policy credentials. However, his self-proclaimed “soft power” approach may or may not yield results in a new international order that sees developed countries, such as China, Britain, Russia, Canada, Japan, and the US all flexing muscles through aggressive trade and cyber tactics. Foreign relations hiccups could send the market into a tailspin, affecting USD currency pairs. Biden’s running mate, Kamala Harris, called Trump’s trade war with China a failure during a recent debate with Vice President Mike Pence. Fed Chairman Jerome Powell agreed that the trade war with China is impacting the US economy, causing American families to spend more than $1 billion per month on higher-priced goods.

While fluctuations in foreign relations may cause higher prices on imported goods, OPEC’s oil market manipulation may lower oil prices, causing private oil companies to go out of business by flooding the market with excess oil from US and Middle East resources. America’s oil boom is sparked in part by fracking, an oil recovery method that environmental activists abhor. Biden plans to work with the legislative bodies to stop fracking. It’s a move that may be good for the environment long term, but it could have short-term economic consequences for oil companies, which is something for traders to consider when eyeing the possibility of a Biden or Trump presidency next term.

US election 2020 coverage

 

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