Stock Market Crash! Will the Big Crash come if Trump Loses the Election?
On November 3, 2020 it will be that time again: The US will elect its 46th President - or they will grant the 45th incumbent Donald Trump another four years in the Oval Office. But what impact does this decision have on the stock market?
At the beginning of 2020, in the US election campaign, it looked like incumbent US President Donald Trump had his second term as good as in his pocket. In addition to the relatively good poll numbers, many experts also believed that Trump had a good chance of another four years in the Oval Office.
Trump has Gambled away his lead
Now, almost half a year later, the mood in the land of opportunity has changed dramatically. The global corona pandemic and nationwide protests following the death of George Floyd have now apparently led many Americans to change their attitudes towards the Trump administration. While Trump fans continue to forgive their president for any faux pas, the more moderate voters have increasingly turned to the Democrats in recent weeks.
So the situation now arises that the US Democratic candidate-designate, Joe Biden, is clearly ahead of the incumbent Donald Trump in polls, contrary to the original expectations of the political experts. According to the latest “Reuters” surveys, the democratic candidate even managed to outbid the incumbent president by up to 13 percentage points. Around 48 percent of registered US voters are now ready to vote for Biden on November 3rd. Trump, on the other hand, can currently only unite around 35 percent of the voters. Accordingly, it is hardly surprising that only 38 percent of the US citizens surveyed see his public appearance as positive and that 57 percent of American adults reject his office.
Trump – the Darling of Wall Street
Despite poor poll numbers, there is currently no question that Donald Trump is Wall Street’s favorite candidate. ” The best thing for the financial markets would be Trump. […] With him, the markets know best how things will continue,” is the assessment of Robert Greil, chief strategist of the private bank Merck Finck, according to “Börse online”. Because Trump measures his political success directly on the prices of the major US stock market indices. So it is very important to him that the US Federal Reserve, under the direction of Jerome Powell, pumps innumerable fresh billions into the US economy every month and maintains the zero interest phase.
Will the Big Crash come if Trump Loses the Election?
With slogans at election campaign events like: “If I don’t win, you’ll see a crash like never before,” Trump is currently fueling fear and trying to get many US voters on his side. After the departure of the two more left-wing presidential candidates Bernie Sanders and Elizabeth Warren, the supposedly critical situation for Wall Street has long since eased enormously. Because, unlike Sanders and Warren, Biden, the US Democrats’ presidential nominee, is neither a great opponent of Wall Street nor a socialist. The 77-year-old ex-vice president is rather a very moderate candidate who finds beginners even among more conservative voters.
“Biden shouldn’t cause too much turbulence in the financial markets,” says Robert Greil. However, one must not forget that Biden, for example, is calling for US President Trump to withdraw the tax cut, which should unnecessarily burden many US companies, especially in the current situation.
The magic of the US presidential cycle
Disconnected from the personality of the individual presidential candidates, there is something like a presidential cycle in the USA, which has been determined for around 120 years with impressive precision and a high hit rate using the Dow Jones index . “The US presidential cycle is one of the few functioning regular cycles in the financial world,” said market strategist Robert Rethfeld to “Tagesschau”.
For example, there is an 83 percent probability that stock market prices will rise if an incumbent president runs for re-election. In addition, election years, with an average increase of around eight percent, are the second best years on the stock market – after the pre-election years. Because in the year before the election, the prices on the stock exchanges rise by an average of around 12 percent.
The reason for these supposed phenomena is relatively easy to understand. Because in the months before the election, the incumbent will of course once again pull out all the stops to stimulate the economy in his country, which in practice the stock exchange anticipates at an early stage.
In view of the new highs on the US stock markets, however, the question now arises as to which factors can provide new impetus in the remaining five months until the presidential election in November. Because the speed of the V-shaped recovery rally as a result of the Corona crash in the S&P 500 , Dow Jones and above all in the NASDAQ has now amazed even the greatest optimists.
The central bank sets the tone, not the president
Regardless of who can celebrate the move into the Oval Office on November 3, 2020: In order to get the US economy back on track, the Federal Reserve System will not abandon the path of ultra-loose monetary policy or maximum stimulation of the markets differ. “We’re not even thinking about hike rates ,” said Federal Reserve Governor Jerome Powell in a recent statement.
And as long as an ever increasing amount of money ensures rising stock prices and low interest rates, it doesn’t make much difference whether the most powerful man in the world comes from the Democratic or the Republican camp.
Credits: Pierre Bonnet