The race for the White House
Every four years, the U.S. presidential election can have a major impact on policy, laws and foreign relations. The race for the White House between Trump and Biden has revolved around key issues such as trade, economy, healthcare, COVID-19 response and China policy.
But how do presidential elections affect the market? And how does that affect you?
The three major sectors affected would be mainly technology, energy and healthcare.
Technology: As the world advances in technology, large technology companies have increasing power over market share and the public's general life. This is a key concern that the new governemnt would be focused on addressing, potentially policy changes and even higher taxes as Biden has proposed on tech giants. This could result in a plunge in both the tech giants’profits and share price.
Healthcare: 2020 being a year of the global Covid-19 pandemic has caused the healthcare sector to be in a state of volatility. Now to top it off, the US election could have an impact on this sector. Healthcare is a key area of concern for the public's everyday life, hence a topic of hot debate in each election. While Biden has plans for more affordable healthcare, things would turn in the opposite direction if Trump wins.
Energy: The issue with energy is on how sustainable it is. With global warming and depletion of traditional sources of fuels, the world has largely been interested in energy alternatives and renewable energy. The two candiatates are divided on this issue, with Trump's disbelief on the need for energy alternatives, versus Biden's dedication to renewable energy. Based on this, a Trump victory would boost share prices of traditional fuel companies (oil and gas companies), while a Biden victory would potentially raise the playing ground for companies involved in renewable and alternative energy.
But why trade stocks if you can trade indices?
A stock market index is a measure of changes taking place in the stock market. A few similar kinds of stocks are chosen from amongst the securities already listed on the exchange and grouped together – to form an Index. The criteria of stock selection could be the type of industry, market capitalisation or the size of the company. Any change taking place in the underlying stock prices impact the overall value of the index. If the prices of most of the underlying securities rise, then the index will rise and vice-versa. Dow Jones Industrial Average, NASDAQ, S&P are all popular and famous stock indices.
As 20% of the US market value comes from the big technology companies, Biden’s tax proposals could affect the stocks and the US stock indices in turn. Investing in stock indices could also be a way to offset the risks of investing in individual stocks, since an index is made up of a group of stocks of various companies.
Gold is commonly used as a safe haven. In times leading up to political or economic events, investors tend to flock to stock up gold to hedge their risks. Gold price has hit an all-time high in recent months, which suggests that many investors prefer to hedge less risky assets leading up to the US election.
The US dollar has been a haven where investors turn to weather the volatility of other financial markets. If share and index prices fall, within significant sectors, more investors may turn to the USD and also gold (another traditional safe haven for investors). Besides that, certain currency pairs may strengthen due to the political situation.
GBP/USD: The Cable - one of the most traded currency pairs in the global $6.6 trillion-a-day FX market (according to Bank for International Settlements (BIS) Triennial Survey of FX and OTC Derivatives Trading, 2019). The US and UK have a long-standing positive trade relationship.
USD/CNH: During the past few years, under Trump’s diplomacy, tensions between the US and China mounted; especially during the trade tarrif war. Biden’s diplomacy may lead to improve relations between both countries, which in turn leads to a price increase for the CNH.
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The information and opinions provided here do not take into account any particular individual's investment objectives, financial situation, or needs, and hence does not constitute as an advice or a recommendation with respect to any investment product. This advertisement has not been reviewed by the Monetary Authority of Singapore.
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