Politics and finance come together every four years when America elects a new President. History has shown the correlation between these two worlds as the presidential cycles affect stock market returns.
The stock market, as defined by the Dow Jones Industrial Average (DJIA) has generally performed better when the incumbent party won each given election, regardless of the political party. If in the three months leading up to the election the stock market is up, it is likely that the incumbent party will win. Losses in those three months mean that the opposing party is likely to come into victory.
2016 Presidential Election: Clinton v Trump
Donald Trump’s shock win in the 2016 Presidential Election has caused waves in the global markets. The market’s preference for sticking to the status quo has been thrown into disarray with a president-elect with no previous experience in government and unconventional methods of policy-making. His unpredictability means he is regarded as more of the political risk by investors.
Analysts predicted that the long-term effect of Trump’s election could have a larger negative impact on the market than the Brexit vote in June. As initial results showed that Trump was on course to win the race for Presidency, the value of the dollar fell dramatically against the yen and the euro.
Forex traders have braced themselves for the uncertain market following the unexpected election result, so where else has the market been affected by Trump’s presidency win?
The Mexican Peso
Prior to election data being rolled out, the Mexican peso was up around 1.3% against the dollar. The currency has been subject to intense interest throughout the election period as a stronger peso showed a lower likelihood of a Trump victory.
Following the announcement of the election results, the peso took its biggest drop in over 20 years amidst uncertainty over president-elect Trump’s policies on exports to Mexico. During his campaign, he promised to increase tariffs on Mexican imports to the US and if he implements this, it could prevent growth for the Latin American country’s economy.
Gold
Prior to the election, it was expected that gold prices would benefit no matter what the outcome was. However, although gold prices initially surged after Trump’s win, it declined to finish less than 0.1% lower at $1,273.50 an ounce by the end of the day.
As Trump’s policies are not consistent, he is still considered as a risk for the global market, which is evident from the instability of the current stocks. Investors are now watching very closely to see who Trump selects for his team and the extent of their experience.
