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03 Nov 2020
2 min read

Trading the US Election 2020: What to Expect

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Written by OspreyFX News Team

Trading the US Election 2020: What to Expect and How to Approach

*OspreyFX would like to state that traders should research extensively before following any information given hereby. Any assumptions made in this article are provided solely for entertainment purposes and not for traders to guide or alter their positions. Please read our Terms & Conditions for more information.

Key Takeaways:

  • The market’s reaction to the US election over the last few months
  • Possible election outcomes and their effect on the financial markets

With the US election taking place today, traders and investors are looking for a direction amid increased market volatility. Uncertainty is expected within the financial markets during any US election. However, this year, other factors are also contributing to the market’s high volatility.

The U.S. presidential election is happening on November 3rd, however, the actual outcome may not be known for days or weeks after. We can expect the jittery market mood to persist for quite some time.

What Happened Last Week?

Last week,Ā the market recorded the worst week for global stocks since March,Ā atĀ theĀ height of theĀ pandemic.Ā Now, one day before the election, the markets are faring significantly better. European indexes are close to 2% gains while the U.S.Ā market opened strongly to the upside with gains north of 1.3%. The heightened market turbulence we witnessedĀ during the last sessions is partly due to the rapidly rising numbers of confirmed Covid-19 infections.Ā The other part isĀ largely attributed toĀ the risingĀ investorĀ fear thatĀ Tuesdayā€™s election result will prove inconclusive and market participants will have to wait for brighter days in a volatile political climate. As the market hates uncertainty, what will matter most to investors is the degree of victory.Ā 

How to trade the US election

What are the speculations on the next US president and the financial markets?

As polls indicate a BidenĀ win onĀ the 3rdĀ ofĀ November, a win for the Democratic Party can bring changes in the energy and healthcare sectors. Joe Biden plans to increase taxes while at the same timeĀ promisingĀ to modify the current 401k tax in order to incentivize people with lower income to contribute to their 401k. Biden could alsoĀ be seen asĀ more stable, which can help to reduce market volatility.Ā 

On the other hand, President Donald TrumpĀ presents more favorable tax policies to businesses, high-income earners,Ā institutional and individual investors.Ā Moreover, his announcements on social media often produce rapid and unexpected moves in the market that appeal to traders.Ā 

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How will the possible outcomes affect the markets?

Any outcome could alter the course of the financial markets, both in and outside of theĀ U.S. There are many reasons to be optimistic about theĀ U.S.Ā marketsĀ inĀ theĀ aftermath of theĀ electionsĀ Ā IrrespectiveĀ ofĀ theĀ outcome,Ā the market will need to receive the long-awaited fiscal stimulus to boost theĀ U.S.Ā economy.Ā WithĀ aĀ RepublicanĀ win, incumbent President Donald Trump has vowed to provide a ā€œvery bigā€ package. This will be a tough battle as he willĀ have to dealĀ againĀ with a divided Congress,Ā that is,Ā theĀ status quoĀ would beĀ maintained.Ā 

InĀ theĀ case of aĀ DemocraticĀ win, rival Joe Biden has promised to deliver $2 trillion to climate change and trillions more to be distributed across the U.S economy. In order to doĀ this, he will need the Democrats to win both houses of CongressĀ (theĀ House of Representatives and the Senate).Ā This scenario is called a ā€œblue waveā€ or a ā€œblue sweepā€ andĀ withĀ it, Bidenā€™s large-scale vision becomes a real possibility.Ā Ā 

Even if thereā€™s a clearĀ outcomeĀ to theĀ election tomorrow, traders and investors can still expect the volatile environment to continue as theĀ U.S.Ā needs to keep battling the pandemicĀ that isĀ sweeping across the country.Ā Furthermore,Ā theĀ market will be relying heavily on the cash injection so that itĀ canĀ keep the momentum and stay afloat.Ā 

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