If ever there was a time to get excited about markets, now is the time.
With plenty of Central Bank action this week, the big theme overriding everything right now is the 2016 US Presidential Election. Markets have been chopping back and forth and there are two BIG questions on everyone’s mind:
- Who will win- Hillary or Trump? and
- How will the markets react to the winner?
Many traders know that we do things differently here at Trade View.
What many may not know is that as a proprietary firm, we also model events outside of the market that may have an impact on the market.
The 2016 US Presidential Election is one of those events that we have been tracking quite closely.
Some of you may be asking- what does such an event have to do with trading? This is a long and complicated answer, primarily related to bigger picture fundamental factors. However the short and simple answer is this:
“Big fundamental shifts in US sentiment will have an effect on global markets. The upcoming 2016 Election is an example of one event, that may cause such a fundamental shift to occur…”
Knowing this in advance- we can begin to think about how such an event will affect our models and systems and what actions may be required.
As mentioned earlier, we have been tracking the 2016 US Presidential race closely against its impact on various markets. One of the major markets we use to track (and benchmark) this model is the S&P500. Here are some interesting statistics derived from this model. Historically looking back to 1896:
Election years tend to be positive much more often than not
The average return in an election year is 11%
The average return at the end of a President’s term is also 12% (after 4 or 8 years)
The third year of a President’s term (i.e 2019) is by far the strongest of all years
Looking deeper into this model, we begin to see odd numbers; particularly when a new president MUST be elected (this is the case now as President Obama has served his maximum sentence).
This is important as we have seen strange things (i.e extremes) occur during these years. 2008 was a classic example, where the S&P was down 37% for the year.
Adding to this- we’ve also found there is a strong correlation (>80%) between which party wins the election and the performance of the S&P500 in the months leading up to the vote. We informed our members of this and the scenario’s we expect over a month ago in our NEWSLETTER, and this has been playing out perfectly so far!
So what do you think?
Hilary or Trump? Who is better for this market?
Or perhaps the outcome doesn’t matter…..