The most positive outcome for equities in the US elections would be a Clinton win coupled with her having a majority in at least one chamber. No control over Congress and/or a change of the party controlling the presidency substantially increases volatility in equities.
There are many different ways to cut the US election in relation to equity performance. We have looked at all 22 US elections since 1928 analysing both gold and equities prior to and a year after each election.
Now that the chances of a Trump win are looking increasingly remote, the nature of a Clinton win is the most important aspect to focus on in this election. Our analysis highlights that a situation in which the sitting president has no control of either the House or the Senate, has historically created a very volatile environment for equities. Political uncertainty and and inability to push through promised reforms take their toll on market confidence and within one quarter equities have typically sold-off by 7.6%.
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There is a risk that we may be putting too much trust in the pollsters; it is difficult to discount anything in the US elections given the pollsters’ difficulty in capturing populist waves. Markets are currently assuming a Clinton victory, therefore a Trump win would be very detrimental to risk assets. We can’t wholly quantify just how much negative impact a Trump win would be, but a change in the party controlling the presidency (Republicans to Democrats or vice-versa) has also led to equity market sell-offs very similar to those where the sitting President has no control of Congress.
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Furthermore, this is when gold is most effective in being an event risk hedge.
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Although in a situation where the incumbent party wins and has control of Congress, or partial control at least, gold has historically sold off. We continue to expect gold price weakness in the near-term, although continued European political instability in 2017 is a key factor that will maintain investor appetite for gold.
James Butterfill, Head of Research & Investment Strategy at ETF Securities
James Butterfill joined ETF Securities as Head of Research & Investment Strategy in 2015. James is responsible for leading the strategic direction of the global research team, ensuring that clients receive up-to-date, expert insight into global macroeconomic and asset class specific developments.
James has a wealth of experience in strategy, economics and asset allocation gained at HSBC and most recently in his role as Multi- Asset Fund Manager and Global Equity Strategist at Coutts. James holds a Bachelor of Engineering from the University of Exeter and an MSc in Geophysics from Keele University.