Brief Guide: how to trade United States Election
After the Brexit vote two weeks ago, the next main big thing is the United States election. In our last article on this topic, the field was relatively large with the Republicans having more than 10 candidates.
Now, the battle has been narrowed to two: Donald John Trump (Republican) against Hillary Rodham Clinton (Democrat).
The market will definitely move based on a number of factors such as poll releases and their speech.
As a trader, you should constantly follow on what the politicians are saying because this will affect how certain assets move.
United States Election and the Global Economy
United States is the world’s largest economy, and also the world’s most influential country. Therefore, a single market factor can lead to a global recession.
For instance, in 2008, the fall of one bank led to a global recession. The election therefore is being followed by many investors and business people because the market will move depending on who wins. A number of policies have been addressed by the candidates: Hillary Clinton hopes to continue with the legacy of the incumbent president, Barrack Obama, while on the other hand, Donald Trump aims to introduced new radical measures with the aim of ‘making America great again’.
A win for Hillary Clinton therefore will mean status quo. However, if Trump wins, the market will definitely react.
Donald Trump has promised to introduce major changes in the United States and how it relates with the world. He believes that the country has introduced measures that have made it weaker than its counterpart. He also questions the nature of deals she has made with countries.
Specifically, he has questioned the Iran deal and the North America Free Trade Agreement (NAFTA). He promises to repeal the two deals, and also to build a wall separating the country with Mexico. He has also promised to deport more than 11 million people.
Such policies will have significant impacts on the American economy.
In their assessment on global risks, the Economist Intelligence Unit mentions Trump as one of the key factors to global risk. Though the unit does not believe Trump will win the election, they believe that his winning will have negative impacts to the world economy.
Hillary Clinton on the other hand is viewed as more friendly to the business community. Her policies are in line with what Obama is currently doing. If she wins therefore, We expect the market will rebound in the first few days.
As a trader, you should take advantage of the volatility to increase your profits.
→How to Trade in Periods of High Volatility
How to Trade the United States Election
With the above background, as a trader, you need to understand a few things when trading.
- Twitter is your best friend in terms of news. Both Hillary and Trump are active on Twitter. Occasionally, they make announcements through Twitter before announcing them on TV. It is important to have an eye on everything they say.
In 2015, Clinton posted a message about the increasing prices on drugs. As a result, Valeant Pharmaceuticals, a company that was once a darling to hedge fund managers fell from $270 to $18. - - Always know when they are making television appearances or delivering a speech. During their appearances, the words they say about the economy or their policies will have an impact on the international markets.
- Use history as a guide to predict who will win the general election and place your trades accordingly. Research has shown that if the economy improves in the run-up to the general election, the person in the incumbent party will win. In this case, if the economic numbers are positive, chances are that Hillary will win.
If on the other hand the economic numbers are not strong enough, Trump will win. With this understanding, before the numbers are announced, you will have placed your trades accordingly.
- Look at the sectors that will likely improve or decline when a candidate wins or loses. For instance, in case Hillary wins, sectors such as pharma will go down. If Trump wins, the utilities, defence, and real estate will be the likely winners.