At this point, no one knows what will happen in the U.S. presidential election on November 5. Based on the polls, the race for the White House is pretty much a tie, and both parties have a good chance of taking the House.
According to UBS Group’s most recent ElectionWatch study, Republicans have a small edge in the race for the Senate.
So, investors should be ready for a lot of different results. One of these is the chance that the election will be contested, like the race between President George W. Bush and Vice President Al Gore in 2000. The race went on for more than a month until the Supreme Court stopped a recount in Florida. Bush was declared the winner.
History shows that stocks have generally gone up over time, no matter what party is in power in Washington.
There are more at stake this time, though, according to Jay Hatfield, a fund manager at Infrastructure Capital. Because the two parties support very different policies, the result could have very different effects on the markets.
Hatfield said, “This isn’t your average election.” “It has the potential to make a big difference.”
What might happen to important parts of the market and a number of indicators?
Stocks
With only a few days left until the election, the stock market didn’t seem to know what would happen to stocks if former President Donald Trump or Vice President Kamala Harris won. Instead, investors were looking at earnings reports from some of the biggest companies on Wall Street and numbers from the job market to get a sense of the economy and the next move the Federal Reserve will make on interest rates.
Even though things aren’t changing much—the major markets are only 2.5% below their all-time highs—the election won’t be a waste of time.
A big worry for investors has been that it might take a while for the results of the presidential election and key congressional races to come out, which could make people less willing to take risks.
Even though U.S. stocks ended the week up on Friday, they had a rough time and lost money overall. The S&P 500 SPX fell 0.41% and the Dow Jones Industrial Average DJIA fell 0.69% in the same week. Statista says that the S&P 500 dropped 1.4%, the Nasdaq Composite COMP 0.80% dropped 1.5%, and the Dow dropped almost 0.2%.
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Investors might want to keep an eye on the rules, subsidies, and tariffs that Harris or Trump suggest for different industries. These laws could help or hurt growth in certain areas.
“If Trump wins, incentives for green energy are likely to go away, which could slow the growth of sales of electric vehicles.” Fawad Razaqzada, a market expert at StoneX Group, told MarketWatch via email that this could be good news for companies that make cars that run on gas, like GM and Ford. “Trump wants to allow more oil drilling in the U.S., which could cause oil stocks to rise right away.” A win for Harris, on the other hand, would probably help companies that make solar, wind, and other types of green energy.
Meanwhile, Trump’s proposed higher tariffs could have a chilling effect on companies that import products from or do business in China, like the information technology sector. However, the extent to which government policies affect certain sectors depends on more than just who holds the executive office, and includes the vote outcome in the legislative branch. On top of that, sometimes sectors perform well regardless of the president’s political beliefs. For example, oil companies outperformed the market in 2022 while Biden was in office, thanks to high oil prices globally, while green energy companies beat traditional energy companies in the stock market under Trump.
Bonds
November’s first trading session ended in another selloff in long-dated U.S. government debt, which pushed the benchmark 10-year Treasury yield
TMUBMUSD10Y4.397% to its highest closing level in four months. The risk now is that election results could trigger further selloffs, fueled by worries about government deficit spending, that could send the benchmark rate closer to 4.5%.
While the yield is still some distance from its 4.7% year-to-date high from April 25, the speed of increase is what matters most when it comes to the potential for a spillover, such as a selloff in stocks. Even Friday’s weak jobs report for October was not enough to halt the ascent of the 10-year yield, which closed at roughly 4.36%. In a sign that more upside moves may be on the way, the yield has floated consistently above its 50- and 200-day moving averages for the past two weeks.
Anticipated volatility in the bond market has jumped in the final days before the election, something that rarely happens outside of a market shock or unexpected event.
A widely followed measure of expected volatility in the Treasury market, known as the ICE BofAML MOVE Index, was at 132.58 on Friday and near the highs which prevailed a year ago after having jumped from 90.14 at the end of September. The creator of that gauge, Harley Bassman, recently told MarketWatch that the index tends to rise on events that aren’t expected to happen. The index’s recent climb suggests bond investors were preparing for big swings in yields during the days that follow next Tuesday’s election.
