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Here are the stakes for stocks, bonds, gold and other markets as investors await too-close-to-call election
At this point, it’s anybody’s guess how the Nov. 5 U.S. presidential election will turn out. Polls suggest the race for the White house is essentially a tossup, while either party has a solid chance of taking the House.
Republicans in the Senate race enjoy a modest advantage, but only a slight one, according to UBS Group’s latest ElectionWatch analysis.
With this in mind, investors should be prepared for a number of different outcomes, including the risk that the election could be contested, like the 2000 race between President George W. Bush and Vice President Al Gore. That race dragged on for more than a month until the Supreme Court finally put a stop to a recount in Florida, leaving Bush the winner.
History shows that, over time, stocks have tended to rise regardless of which party holds control in Washington.
But Jay Hatfield, a portfolio manager at Infrastructure Capital, told MarketWatch that the stakes are higher this time around. With both parties backing dramatically different policies, the implications for markets could be far different depending on the outcome.
“This isn’t your garden-variety election,” Hatfield said. “It could potentially have a huge impact.”
Here’s how key areas of the market and several gauges might be impacted.
Stocks
With just days to go until the election, the stock market seemed undecided about what a win by former President Donald Trump or Vice President Kamala Harris might mean for equities. Instead, investors were focused on corporate earnings reports from some of Wall Street’s biggest companies and labor-market data to help gauge the state of the economy and the Federal Reserve’s next move on interest rates.
Still, the relatively steady backdrop, with the major indexes only about 2.5% off record highs, doesn’t mean the election will be a non-event.
A big fear for investors has been that the results of the presidential race and key congressional contests might take time to emerge, which could very well dampen appetite for taking risks.
U.S. stocks on Friday finished higher, but suffered a choppy, losing week. The S&P 500 SPX and the Dow Jones Industrial Average DJIA posted back-to-back weekly drops. The S&P 500 fell 1.4% for the week, the Nasdaq Composite COMP shed 1.5% and the Dow lost nearly 0.2%, according to FactSet data.
Sectors
Investors may want to pay attention to the industry regulations, subsidies and tariffs proposed by Harris or Trump, because this legislation could help boost or limit growth in specific sectors.
“A Trump victory would likely mean the elimination of incentives for green energy, and this could lead to slower electric-vehicle sales growth. But for fuel-powered vehicle companies such as those made by GM and Ford, this could be good news,” Fawad Razaqzada, a market analyst at StoneX Group, told MarketWatch via email. “Trump wants to unleash more oil drilling in the U.S., which means oil stocks could rise in immediate response. In contrast, a win for Harris would likely give a lift to solar, wind, and other renewable energy producing companies.”
Both Biden and Trump passed regulations that impacted specific sectors. Although Harris has set herself apart from Biden, analysts expect her to keep more of Biden’s regulatory stances that Trump would if he were elected president. - Wells Fargo Investment Institute
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 BX:TMUBMUSD10Y 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.
Bond volatility
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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.
Credit
The big universe of U.S. bonds beyond government debt has remained remarkably calm, like stocks, despite tumult in benchmark bond yields and anxiety around the election.
Bond spreads remain near historic lows, a sign of the economy’s resilience. Spreads are the extra compensation above the risk-free Treasury rate that investors earn on corporate bonds and other debt-related assets to help offset their risks.
Yields, on the other hand, remain historically high. Since starting yields have been one of the best indicators of future bond returns, this chart shows how even if benchmark yields, like the 10-year Treasury, keep climbing from Friday’s roughly 4.3% level, returns still look poised to be positive. A drop in rates, however, would boost returns.
The U.S. Aggregate bond index returns under several hypothetical 10-year yield scenarios. -
Oil
For oil, the Middle East has been front and center since the Hamas-led attack on Israel over a year ago, along with concerns over the prospects for global demand, but as the U.S. election nears, traders have turned their attention to the very different views of the presidential candidates.
Trump has been vocal about raising U.S. oil production – often quoted as saying “drill, baby, drill.” U.S. election uncertainty could “keep bears in the game and a Trump victory may lower oil prices” even more, said Lukman Otunuga, manager, market analysis at FXTM. “Trump is seen pushing for a further increase in domestic oil and gas production, leading to increased supply in the long term.”
Democrat Kamala Harris, meanwhile, may give priority to clean energy and electric vehicles, Otunuga said. “If this leads to restrictions and less investment in the oil industry, prices could push higher as supply falls.”
As of Thursday, U.S. benchmark West Texas Intermediate crude CL.1 CLZ24 settled Thursday at $69.26 a barrel on the New York Mercantile Exchange, with front-month prices down 3.3% year to date. Global benchmark Brent crude BRN00 BRNF25 ended Thursday at $72.81 on ICE Futures Europe, down 5% for the year.
Gold prices have climbed to all-time highs on an intraday basis 39 times so far this year – as recently as Wednesday — with analysts attributing that rise to traders seeking out the precious metal as a safe-haven investment against a backdrop of uncertainty about the U.S. presidential election and geopolitical strife.
Central banks have been big gold buyers in recent years, with purchases reaching a record high of 1,081.9 metric tons in 2022, according to the World Gold Council. Buying has slowed more recently, with central-bank net purchases year to date at 694 metric tons as of the end of the third quarter.
Still, gold is making up a larger share of global central bank reserves in recent years, while the share that’s held in U.S. dollars has been on a downtrend, as this chart from TS Lombard shows.
- IMF, TS Lombard
Given differing “policy directions on trade, spending and regulation,” Republican Donald Trump or Democrat Kamala Harris could “easily influence investor sentiment and cause significant swings in gold’s appeal as a hedge,” said Adam Koos, president at Libertas Wealth Management Group.
As of Thursday, gold for December delivery GC00 GCZ24 settled at $2,749.30 an ounce, up 33% year to date.
U.S. dollar
The U.S. dollar is on a pre-election tear, with gains attributed in part to growing confidence about a Trump victory among traders. The ICE U.S. Dollar Index DXY, a measure of the currency against a basket of six major rivals, is up around 3.5% since the end of September, ending Friday near 104.39, despite Trump’s past calls for a weaker dollar and fears that import tariffs and wider deficits could prove inflationary. The argument is that potential Trump policies would leave the Federal Reserve less room to cut interest rates, providing support for the dollar versus most other major currencies.
“If Trump were to win the Nov. 5 election, he would not need congressional support for tariff increases. This means that these could be enacted relatively quickly, and in Rabo’s view, the inflationary consequences could mean that the Fed’s easing cycle could be all over by January,” said Jane Foley, senior FX strategist at Rabobank, in a note. ”Clearly this is USD positive, at least through 2025.”
- Rabobank
But the dollar may have room to unwind gains — and fast — if Harris wins, analysts said.
“The big risk in the market right now is a Harris win, as that will unwind a LOT of trades and hedges and pathways, etc. DXY to 100.00 pretty quickly,” said Brad Bechtel, global head of FX at Jefferies, in a note this week.
—Vivien Lou Chen, Joy Wiltermuth, Gordon Gottsegen, Isabel Wang, Myra P. Saefong and William Watts contributed.
