Stocks are falling due to the uncertainty surrounding the upcoming presidential elections in the USA. According to DPA, the uncertainty rose due to the recent rise in the Donald Trump chances of winning elections. This indicates that markets started to price in possible Trump victory.
The major U.S. stock market indices fell over the past week. S&P 500 has been falling for 9 days in a row. This is particularly significant, as S&P 500 has not fallen for 9 successive days since 1980. Dow Jones Industrial Average, major Wall Street index has been falling for 7 successive days past week. International markets followed the U.S. markets lower over the past week. Japan’s Nikkei 225 fell 2.74%, Germany’s DAX 30 fell 4.09%, and Britain’s FTSE 100 fell 4.31%.
The worst performing major index over the past week is The PowerShares QQQ Trust which fell 2.96%. Bond yields have also moved lower as a reaction to the possibility of a Trump victory in the elections. Let’s look at how elections could impact markets.
“If we were to go in 70/30 [for Clinton], and we think the market is 10 percent higher under Clinton than Trump, if Clinton wins it should be up about 3 percent and if Trump wins, it should go down 7 percent,” said Eric Zitzewitz, economics professor at Dartmouth College, according to CNBC. “There’s no question in my mind that the markets have not priced in a Trump win, only in the most cursory way. They are starting to price in the potential for a Trump win. That process started last Friday,” said Tony Roth, CIO of Wilmington Trust. “We haven’t seen an up day in the markets since then. We haven’t seen any calamitous days either.”
It is agreed that in the case of Trump victory, there will be a sell-off. It might be a good idea to short if we guess that Trump wins, or buy long if we expect Clinton to win. Moreover, if Trump wins, GDP forecast is expected to be lowered. On the other hand, Trump supports the looser regulatory environment and wants to implement positive tax changes which may lead to bullish market later. This would result in a V-shaped movement in the market.
To sum up, as the odds of a Clinton victory continue to move lower, so does the stock market. In the case of Clinton victory, we can expect rising markets and in the case of Trump victory the opposite.