The Market Isn't Predicting a Trump Victory. But It Is Very, Very Afraid of Election Day

As the 2024 U.S. election approaches, markets are grappling with a complex web of uncertainties, with one looming fear: the possibility of a contested election outcome. While polling data suggests a tight race between Vice President Kamala Harris and former President Donald Trump, market participants are not betting on a Trump victory. However, the mere prospect of a contentious election is fueling anxiety and volatility across various asset classes.


Market participants are hedging against election-related volatility through various strategies. In equities, investors are favoring defensive sectors such as utilities and consumer staples, which tend to perform better during periods of uncertainty. In bonds, investors are seeking safe-haven assets like U.S. Treasury notes and high-quality corporate bonds. In commodities, gold and other precious metals are attracting attention as a hedge against potential market turmoil.


The market's fear of a contested election is also manifesting in foreign exchange markets. The U.S. dollar has strengthened against major currencies, reflecting investors' preference for safe-haven assets. However, the impact on currency exchange rates is not uniform, with some emerging market currencies experiencing volatility due to their exposure to U.S. trade dynamics.

Investors are positioning themselves for potential policy changes following the election. A Harris victory is expected to bring more progressive policies, including higher corporate tax rates and increased regulation. This could have implications for sectors such as technology, finance, and healthcare. Conversely, a Trump victory could lead to more business-friendly policies, potentially benefiting sectors like energy and manufacturing.


Geopolitical risks and international market dynamics are exacerbating election-related market fears. Tensions with China, Russia, and other global powers could be exacerbated by a contested election, leading to further market volatility. Additionally, the outcome of elections in other countries, such as Japan and Britain, could have spillover effects on U.S. markets.

In conclusion, while market participants are not predicting a Trump victory, the fear of a contested election is driving anxiety and volatility across various asset classes. Investors are hedging against election-related uncertainty through defensive positioning, safe-haven assets, and strategic portfolio adjustments. As the election approaches, markets will continue to grapple with these uncertainties, with the potential for significant market movements depending on the outcome.