What is the impact of the US elections on the stock market?

The US elections are coming up and it is expected that the outcome will affect the financial markets.

On November 8 it will be determined who will arguably be the most powerful person on earth for the next four years. Investors fear Donald Trump as the winner.

But is this justified?

We have listed some fun facts.

Trump is Wall Street’s greatest fear

In recent months more and more columns and articles have been written about a possible candidacy of Trump.

Virtually all analysts agree; a victory for the Republican candidate is a disaster for the financial markets.

Trump has announced in the run-up to the elections to “make America great again”. The Republican wants to achieve this by pursuing a protectionist policy. He indicated he wants to set import tariffs for countries like China and Mexico.

Trump is also planning to abolish several trade agreements when he is announced winner of the elections.us-elections-trump

Such measures could severely damage the world economy. Trade between countries is of course crucial in the quest for economic growth.

Because America is the world’s largest economy, it not only has impact on the US, but it could bring the entire world economy at risk.

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Republicans are better for the stock markets after elections

In contrast, a Republican victory historically yielded better returns in the financial markets in the short period after the elections. This was demonstrated by a study to price reactions after US elections.

Republicans tend to focus their campaign more on promises toward business.

This in turn creates high expectations among investors, driving up stock prices of these companies shortly after the election.

However, the study also shows that these promises are dampened after a few months, which again has a negative effect on the stock exchanges.

In short, a victory for Trump historically would lead to a smashing end of 2016 and a moderate 2017.us-elections-clinton

A democratic victory, however, seems to show the opposite picture. Investors will expect little from the new candidate in the beginning. The following year, however, Hillary Clinton would be able to surpass these expectations, based on data of her Democratic predecessors.

A victory by the Democrats historically should lead to a moderate end of 2016, followed by a very good year for stock markets in 2017.

Just remind yourself, facts from the past are no guarantee for the future.

  Election Year First Year
Republican 15.50% 0.70%
Democrat 7.40% 16.20%

* Source: Fisher Investment

Post Author: globaltrader24

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