US presidential election

The presidential nominees are decided, but for financial markets, the uncertainty is far from over. Trade the markets with IG. 

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The result

Donald Trump has been elected president of the United States.

On 8 November, the former Apprentice star won the popular vote. The rest of the process is a formality: on 19 December, the 538 members of the Electoral College will meet to vote, and on 5 January 2017, the new president and vice president will be sworn in.

Of course, this will just be the beginning, as Trump begins to enact his policies and global traders unpick what they mean for the markets at large.

How we got here

Having built a campaign upon incendiary promises, few expected Trump to gain the nomination of the GOP, let alone reach the Oval Office.

The first signs of success came in the primaries, when Trump’s popularity triggered speculation of a brokered convention. In reality, the Republican National Convention came to highlight just how vocal his support had become.

From then on, Trump’s campaign resisted every disappointment and scandal. His first debate, in which he focused more on mudslinging than policy, was widely seen to prove how far behind his rival he was. Faring only marginally better in the subsequent debates, the leaked Access Hollywood tape would seem to create a polling deficit too significant to bridge.

Significant events like these often coincided with marked changes in the value of our digital 100, reflecting our clients’ view of the way the election may go. For example, the digital 100 spiked when Trump’s poll numbers surged in September, but plummeted in the wake of the Access Hollywood scandal.

 

The new president and his policies

With such a convoluted political system at play in the US, the importance of the president to the financial markets shouldn’t be overstated. 


For all Trump’s campaign trail bravado, any legislation of concern to traders will have to jump through a number of hoops before it risks disrupting the markets. So even if his candidacy is treated as doomsday in the media, don’t be surprised if markets emerge a little more resolute. 

Still, it’s clear to see why Trump’s victory will likely have a more pronounced effect on the markets than other presidents in recent memory. As such, taking stock of his policies gives us a better chance of anticipating what impact they may have further down the line. 

Tax

The number of income tax brackets will fall from seven to four, with rates for those in the higher brackets reduced, and abolished entirely for the lowest earners. Corporate taxes will be scaled down by half, though certain exemptions that are currently available will disappear.

Spending

Costs such as social security, Medicare and military defence will remain untouched, but certain domestic programmes will be dissolved, notably those associated with the Department of Education and the Environmental Protection Agency.

Trade

Free trade agreements NAFTA and the Trans-Pacific Partnership will be renegotiated or dismantled. Far more stringent tariffs will be exerted upon Mexico and China unless they comply with Trump’s terms, with a view to boosting domestic manufacturing. 

Wages

Trump intends to defer the question of minimum wage to state governments. Overall wages will benefit from an economic plan he claims encourages overall growth.

Wall Street

A number of financial reforms implemented by Obama will be annulled, including and primarily Dodd-Frank, a regulatory law which forces banks to reduce their reliance on debt for funding.

How could Trump's win affect the markets?

Remember that as tough a battleground as US politics can be, the differences between the two major parties – for all the harsh words on the campaign trail – are ones of degree. Not to mention the checks and balances built into the US system, which make radical change unlikely no matter who is in charge.

Even so, this was a presidential race unlike any other, and the high-profile rhetoric has raised the stakes in a way few would have anticipated this time last year. 

Forex

Trepidation around the dollar was a given in the run-up to election day, and it may yet return with renewed force in advance of inauguration day. Keep one eye on the greenback, in particular major currency pairs like  GBP/USD, USD/JPY and EUR/USD

Indices

It would take years to assess the real impact of any president’s administration, but there are historical precedents we might like to use as indicators. 

Studies have shown that between 1929 and 2011, the US stock market gained more under Democratic than Republican presidents. Whether this proves to be true on this occasion remains to be seen, but it’s no surprise that all eyes are currently on the Dow and S&P 500. Watch out, too, for the  Russell 2000 index (which tracks this section of the US equity market) may be worth a watch.

Bonds

On the other hand, fiscal conservatism has always played better with bond markets. It’ll be interesting to see whether current interest in US Treasuries reflects this, or whether the unpredictability of the campaign will carry on into the presidency itse

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You might be interested in...

Primary

A ballot where supporters of a particular party vote secretly to appoint their presidential candidate.

Super Tuesday

The day 14 states hold primaries or caucuses for one or both parties on the same day. This can represent a decisive date for all the candidates.

Contact us

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Upcoming events

09/10/16 - Second presidential debate

The candidates meet in St Louis to field questions from the public

19/10/16 - Third presidential debate

As the election draws closer, will the markets give any hint as to what's in store

08/11/16 -Election day

America finally goes to the polls, following one of the most heated campaigns yet

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