Your Election Day Trading GuideWednesday November 09, 2016 10:33
(Kitco News) - The fight for the White House has intensified. As the presidential candidates power up for the last sprint toward the finish line that is voting day, the tensions are rising, the ads are turning uglier and the polls are narrowing.
While Democratic candidate Hilary Clinton still shows a slight edge in most polls, the lead is within the margin of error. Remember Brexit? The pollsters got that one wrong. Get ready to trade.
The "Fear Gauge" Is Spiking
Stock traders and investors are taking out insurance in the form of "protective puts." The CBOE Volatility Index has woken up from its recent lethargy surging above 22 on Thursday, while stocks prices tumbled throughout the week.
Stock Market History Favors A Trump Win
Does the stock market know something everyone else doesn't? Looking back at stock action over the past three months offers historical clues as to who will win the White House on November 8.
Recent stock action: The S&P 500 fell 2.2% in price from July 31 through October 31, implying but not guaranteeing, a Republican victory on November 8, says Sam Stovall, chief investment strategist at CFRA.
Here's why that's important: Stovall crunched historical data and found that since 1944, whenever the S&P 500 fell during those three months leading up to the presidential election, the incumbent person or party was replaced 86% of the time.
"The only failure occurred in 1956, more likely due to geo-political tensions surrounding Egypt’s seizure of the Suez Canal and the Hungarian uprising than the belief that Adlai Stevenson would unseat Dwight Eisenhower," Stovall says.
What Would A Trump Win Mean For Markets?
"We believe a Republican victory could trigger a further decline in [equity] prices, due to elevated uncertainty," Stovall says.
However, keep some powder dry: "That should be viewed as a buying opportunity since we do not foresee a recession within the coming 12 months," he concludes.
What about gold? The yellow metal is expected to show a knee-jerk reaction higher on a Trump win, as that has not been fully priced into financial markets and could generate a spate of policy uncertainty. Beyond the initial dive into safe-haven assets, gold is expected to continue trending higher. Monetary policy is likely to be looser for longer under Trump and a December rate hike could move off the table, which could weigh on the dollar and be gold bullish.
If Clinton Wins, Could We See A Contested Election?
The answer is yes, if Clinton wins, there remains a distinct possibility for a contested election.
For voters with long memories this could become Déjà vu 2000 –where the U.S. citizens didn't know for weeks who had actually won the election.
In the "hanging chad" saga that unfolded in the Florida voting drama,
then Democratic candidate (who won the popular vote) Al Gore challenged
the contest against Republican George W. Bush. The vote was so close in Florida
that it triggered a mandatory recount and the lawyers got busy in court. The
case (and the result of the presidential election) ultimately fell to the hands of the Supreme Court – who handed down the order to stop the recounts on December 12, 2000 and that confirmed Bush as the victor.
The upcoming U.S. presidential election could be a watershed moment in American history and could unleash shockwaves through the financial markets.
The contentious and sometimes bizarre presidential race has generated even stronger political divisiveness and does not leave the country ready to embrace and move forward as one. A contented election would generate heightened levels of market uncertainty, which would no doubt drive a fresh wave of safe-haven buying into gold.
Stocks: Knee-jerk reactions lower in the stock market could provide a Brexit-like buying opportunity.
Gold: The yellow metal has the potential to spike higher and then trend higher. Many see a new bullish cycle ahead for gold. The best "buy spots" may be seen now in gold –before the election hits.