[FOLLOWVOICE] What to Expect With the Upcoming U.S. Election Possible Outcomes?

Traders and investors have been on jittery behaviour as we are moving closer to the U.S. election, indicating the ultimate battle between the current president, Donald Trump, and his Democrats opponent, Joe Biden on Nov 3 this year. 

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What does this mean to the traders? Here are the possible outcomes from the election and our expectations of the trading markets. 

Scenario 1 - Biden Gets the Big Win

If the Democrats win overwhelmingly, Goldman Sachs stated in a recent report that it expects the oil and gas prices to remain bullish, however, a weakening trend in the greenback under Biden’s administration.

On top of that, the on-going trade war could also ease up under Biden’s administration which could lead to higher international trade volumes and also slightly positive stock market outlook. As for the gold market, a financial website, OILPRICE.com noted that the victory of either candidate does not impact the yellow metal as the current macroeconomic conditions remain favourable to it. 

As for the U.S. dollar, Goldman Sachs also recommended short positions against the greenback, arguing that downsides include the risks arising from vaccine trials and a ‘blue wave’ U.S. election. 

Scenario 2 – The Two Parties Govern the Senate & the President

Given that Biden is elected and the Republicans control the Senate, we expect there will not be any major new fiscal measures during Biden's presidency. Market risk sentiment may be suppressed, but trade and foreign policy will be clearer. This will allow a steadier market sentiment and we project a lesser volatile movement in the U.S. dollar and major stock indices such as the Dow Jones and S&P 500. 

On the other hand, if Trump is re-elected and the Democrats control at least one House of Congress, a compromise economic plan may be introduced, but we expect to see persistent uncertainties in trade and foreign policy.

This will set the market on a further volatile trend as we may or may not have already seen this year so far, especially in the currencies and commodities assets. For example, on Oct 22, 2020, it was reported that with just two weeks until the U.S. presidential election, Trump signalled a willingness to go along with more than $2.2 trillion in new COVID-19 relief after several rounds of mind-changing and negotiations. This sent the market on a roller-coaster sentiment and it is safe to say that there were some major wins and losses in the trading community. 

Scenario 3 - The Republican Party Wins

The current opinion polls show that this situation is unlikely to happen. Nonetheless, we will not eliminate any possibility at this point. With that being said, Trump’s victory will most likely indicate that policies may become more extreme, and the economy may benefit from tax cuts in the short-term period. 

As for the long-term outlook, there is uncertainty due to the disturbance of the international economic and trade order. Despite so, this may indicate a stronger U.S. dollar given that Trump has indicated his goal of seeing a stronger greenback in the past. 

Trade at Your Own Risk

In terms of voting method, Democrats and Republicans have obvious differences. The vast majority of Democrats are willing to vote by mail, while most Republicans prefer to vote in person. Disagreements in voting methods may lead to claims or litigation by the losing party against the winning party, increase uncertainty, and cause significant market volatility over a longer period. 

Regardless of the outcome of this election, long-run planning is always the best way to trade.

On that note, we strongly advise traders to always be prepared with a risk management strategy such as diversification or trading appetite analysis before making any decision. 

Got something on your mind to spill? Share your thoughts in the comment section below and let us know!

By,

FOLLOWME Content Team.