Tuesday, November 5, 2024

How investors can navigate the US election results

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Investors were on edge as Americans headed to the polls on Tuesday, reflecting the uncertainty surrounding the outcome of what has been a dramatic and unpredictable US election cycle.

Traders are keeping a sharp focus on the US as the results could potentially sway stock prices, bonds, and other assets already impacted by months of speculation. With uncertainty still hanging over the final result, analysts and investors alike are bracing for a volatile week ahead.

With the presidential race seemingly heading towards a nail-biting conclusion, market analysts predict that financial markets are set for a period of heightened volatility. Deutsche Bank analysts warned that this could be one of the closest races in American history. “If it’s close, stand by for a long few days,” said Jim Reid, a strategist at the bank.

According to Saxo Bank, investor sentiment has been increasingly cautious in recent days. The bank’s analysis points to a spike in the put/call ratio, which recently hit 1.61, the highest level since 5 August. That period saw a surge in market volatility following an unwind of the Japanese yen (JPY) carry trades, and the elevated ratio now signals that investors are hedging their bets more aggressively. In simple terms, more market participants are trading put options (which profit from price declines) than calls, suggesting heightened concern over potential downside risks in the market.

The betting markets have tilted in favour of Donald Trump, despite his trailing position in the opinion polls, fuelling what Wall Street has dubbed the “Trump trade.” This refers to the market dynamics driven by expectations of Trump’s policies, particularly in areas such as tariffs, immigration, foreign aid, and cryptocurrency regulation. These policies have already started to influence trends across asset classes, with the dollar, gold, silver, and bitcoin strengthening, while stock markets have faced increased pressure.

Economists believe that Trump’s proposed policies, including a 60% tariff on Chinese goods and a 10% tariff on imports from other countries, could drive up domestic prices. This would likely prompt the Federal Reserve to raise interest rates, thereby putting additional pressure on equities and other currencies.

Read more: Stocks to watch if Kamala Harris wins the US election

Matthew Ryan, head of market strategy at Ebury, pointed out that a Trump win would likely be bullish for the dollar, particularly if the Republicans secure a clean sweep of Congress. “Investors would immediately price in lower US taxes, higher Federal Reserve rates, greater protectionism, and elevated geopolitical risk,” Ryan said.

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