As the leaves turn in anticipation of November’s chill, the United States braces for an election poised to shape the market’s climate. With less than a month until the November 5th election day, the market has begun to price in the risks associated with the outcome. The resurgence of Donald Trump’s lead has injected fresh unpredictability into the race, with CICC suggesting that, overall, the election is likely to buoy U.S. stocks; the dollar may strengthen, gold remains neutral, and interest rates are set to rise, with commodity resources potentially benefiting from Trump’s anticipated stimulus measures.
The Market’s Pulse and Political Prognostications
With only three weeks remaining until the U.S. presidential election, traders have incorporated the prospective risks into their pricing strategies. Brian Garrett, a trader at Goldman Sachs, noted today that the VIX volatility index remains elevated—a rare occurrence when juxtaposed with the S&P 500’s record highs.
A Turn of Tides in the Electoral Race
Amidst this backdrop, the electoral tides have turned. The CICC team, led by Liu Gang, has observed a reversal in fortune; Trump has overtaken the previously surging Harris not only in betting odds but also in six of the seven key swing states, further complicating the electoral calculus.
The Index of Expectations
Goldman Sachs reports that their basket index betting on a Republican victory has soared to new heights, while the index wagering on a Democratic win continues to wane.
The Asset Impact of Election Outcomes
CICC posits that the success of the president in garnering congressional support, particularly from the House of Representatives which steers fiscal policy, will directly impact the feasibility of advancing relevant policies.
Scenarios Unfold
CICC outlines four potential scenarios:
- A Republican sweep (39%): A scenario akin to Trump’s 2016 victory, favoring the advancement of his policy agenda, particularly tax cuts.
- A Democratic sweep (18%): A repeat of Obama’s 2008 victory, which would likely ease the implementation of Harris’s fiscal policies.
- Trump + Democratic House (13%): Similar to the divided Congress post-2018 midterms, suggesting Trump may face challenges in fiscal policy but could pivot to trade policies via executive actions.
- Harris + Republican House (5%): Echoing the dynamic post-2022 midterms, indicating Harris may struggle with fiscal policy initiatives, potentially continuing Biden-era policies and administrative adjustments.
The Market’s Anticipated Reaction
CICC believes that the direction of asset impact, aside from the inherent differences in Trump and Harris’s policies, will also be influenced by the order in which policies are implemented. The probable direction is as follows: overall positive for U.S. stocks, though tariffs may negatively impact Chinese assets; a stronger dollar, neutral gold, rising interest rates; and commodity resources may benefit from Trump’s stimulus expectations.
