The US will hit the polls tomorrow to vote in the 60th US election and end months of electoral razzmatazz and market uncertainty.
We have seen organisations, celebrities, and business leaders take sides as the election campaign heated up, but there is still no consensus on who will win on election day.
The Economist endorsed Kamala Harris, citing the untold risks of Trump winning a second term. Billionaire Elon Musk has become Trump’s chief cheerleader, presumably because Trump has promised tariffs that could increase Tesla’s competitiveness in the US.
There is a clear divide in opinion about who should win the election. This has been reflected in relatively benign market conditions in the run-up to the election. Traders have held off making big bets on financial markets, presumably because there isn’t a tradable indication of how it will go.
That said, traders will be all too aware of the potential market reaction as the election results are announced.
A Trump win will likely be bullish for the dollar due to his protectionist and inflationary policies. In contrast, a Harris win could spark a relief rally in stocks as investors cheer the removal of uncertainty around trade wars.
Who’s going to win the US election?
Calling which way this election will go is for either the very brave or very foolish. The polls have tightened over the past few weeks, putting Trump in the lead. However, shifts over the weekend could suggest Harris is now edging ahead.
With an estimated 75 million people already thought to have cast their votes in the US, election watchers learned of possibly the most dramatic polling event of the election campaign over the weekend.
A poll by Des Moines Register showed Harris ahead of Trump in the critical state of Iowa, suggesting Harris could be set for a landslide.
Iowa is important because it’s historically been a stronghold for Trump, and he won the state even when he lost the overall election. It must be noted that it was a relatively small poll of over 800 people, but that hasn’t dampened the media or market reaction.
Iowa Poll: Kamala Harris leapfrogs Donald Trump to take lead near Election Day. Here's how https://t.co/4767zdTjyL via @DMRegister
— J. Ann Selzer (@jaselzer) November 2, 2024
Polls tend to be more accurate in the US than in the UK, where polling companies have lost credibility since the Brexit vote. However, there is still a degree of variability across the most recent US polls, leaving the race too tight to call.
Expected market reaction
The market reaction to the Iowa poll on Monday provides further evidence that a Harris victory would be a positive for stocks. US equity futures picked up from their worst levels following a sell-off late on Friday, with the Iowa poll dominating headlines.
“As Republicans and Democrats embark on a last-minute surge of campaigning, some of the big Trump ‘plays’ on the markets have lost ground. Investors are reassessing Donald Trump’s chances of re-entering the White House, given polls which emerged over the weekend, indicating Kamala Harris may have gained ground in key battle ground states,” said Susannah Streeter, head of money and markets, Hargreaves Lansdown.
“The dollar has fallen back slightly, as the chances of Trump setting off a fresh tariff frenzy, pushing up inflation and interest rates, seem to have retreated a little. Bitcoin, which had also made strides of progress as markets priced in a Trump win, given his pro-crypto stance, has also continued to dip back. But this election is still far too close to call, so considerable swings in prices are likely as the results ebb in.”
A Harris win will likely create a bullish reaction for risk assets, primarily because it will alleviate risk around damaging trade policies promised by Trump.
Should there be any bullish reaction to the election, critical technical levels in the 5,773 regions must be overcome to open the doors back to all-time highs.
The level held after the Non-Farm Payrolls and the S&P 500 fell away from the level after the release on Friday.
#SPX500 testing THIS resistance after NFP bounce. Will it resume lower ahead of weekend/election risk?
— Fawad Razaqzada (@Trader_F_R) November 1, 2024
More 👉 https://t.co/GpYTF58VEz pic.twitter.com/3AuH0pkAGY
However, overcoming this first barrier shouldn’t be difficult post-election, considering some analysts predict a 200-point swing for the S&P 500 after the election.
$SPX is trading in a volatile range as the election approaches. The “election bump” in implied vol indicates about a 200-point $SPX move post-election. https://t.co/kbZzZqowG3 #StockMarkets #stockmarketupdate #optionstrading $VIX $SPY pic.twitter.com/MyaZH3loht
— Lawrence G. McMillan (@optstrategist) November 1, 2024
A Harris win could be a double-edged sword for UK large-cap stocks. Of course, the improvement in risk sentiment would be bullish for the FTSE 100; however, a weakening in the dollar and a strong pound may spark the inverse relationship between the FTSE 100 and the pound and cap any gains.
The FTSE 100 is dominated by dollar earners that are typically hit when the pound rallies.