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Trump trade: Bitcoin hit record highs and Tesla hits $1 trillion market cap
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Bull X Bear joined discussion · Oct 24 15:55

🇺🇸 U.S. Presidential Election, the Stock Market and the Bond Market

U.S. Presidential Election
U.S. Presidential Election
U.S. Election & Stock Market
During U.S. presidential elections, financial markets often experience increased volatility. Key trends include:

1. Market Uncertainty: Investors may react to the uncertainty surrounding potential policy changes, leading to fluctuations in stock prices.
2. Sector Performance: Certain sectors may perform better depending on the candidates’ platforms. For example, healthcare and energy stocks might react differently based on proposed regulations.
3. Increased Trading Volume: There is often heightened trading activity as investors position themselves ahead of the election outcomes.
4. Post-Election Rally or Decline: Markets can either rally or decline significantly after the election results, depending on whether the outcome is seen as favorable for business.

Overall, the interplay of uncertainty, investor sentiment, and anticipated policy changes significantly influences market behavior during this period.
US Presidential Election Cycle Theory
A vast number of factors can impact the performance of the stock market in a given year, some of which have nothing to do with the president or Congress. However, data over the past several decades suggest that there may in fact be a tendency for share prices to increase as the leader of the executive branch gets closer to another election.

In 2016, Lee Bohl, a Charles Schwab researcher, analyzed market data between 1933 and 2015, and found that, in general, the third year of the presidential term overlapped with the strongest average market gains.5 The $S&P 500 Index (.SPX.US)$ , a fairly broad index of stocks, exhibited the following average returns in each year of the presidential cycle:
First year: +6.7%
Second year: +3.3%
Third year: +13.5%
Fourth year: +7.5%6

Since 1930, the average annual rate of return for the S&P 500 was 6.58%, adjusted for inflation.7So while the numbers are about even in year one, and only dip in year two, which is not exactly as Hirsch predicted, it appears there truly is a third-year bump on average.

However, averages alone don’t tell us whether a theory has merit. There's also the question of how frequently this third-year bump occurs. Between 1928 and 2024, the stock market experienced gains in about 67% of calendar years. But during year three of the presidential election cycle, the S&P 500 saw an annual increase 78.3% of the time, demonstrating a notable consistency. By comparison, the market gained 58.3% of the time in the first year of the presidential term and 54.2% in the second year.
Donald Trump’s presidency was a notable exception to the first-year stock slump that the theory predicts. The Republican actively pursued an individual and corporate income tax cut that was passed in late 2017, fueling a rally that saw the S&P 500 rise 19.4%.9 His second year in office saw the index take a 6.2% dive which is consistent with the theory. Furthermore, the third year marked an especially strong time for equities, as the S&P surged 28.9%, again consistent with the theory.
However, the Biden administration saw returns very similar to those predicted by the election cycle model. In his first year in office, the S&P 500 gained over 26%, followed by a drop of -18%. The third year of his administration saw gains of 24%, again consistent with the theory.
Big Cap vs Medium & Small Cap
Big-cap companies typically exhibit smaller volatility compared to mid-cap and small-cap companies during times of market volatility for several reasons:

1. Stability and Resources: Large-cap companies often have more stable revenue streams and greater financial resources, allowing them to weather economic downturns better.
2. Market Dominance: They usually hold significant market share and possess established brands, which can lead to more predictable earnings.
3. Institutional Investment: Big-cap stocks attract more institutional investors, who tend to invest for the long term, reducing daily trading fluctuations.
4. Diversification: Many large companies have diversified business models, which can mitigate risk from economic swings affecting any single sector.
5. Liquidity: Large-cap stocks generally have higher liquidity, making it easier to buy and sell without significantly impacting the stock price.

As a result, while all stocks can experience volatility, large-cap companies tend to show more resilience during turbulent market conditions.
Companies closely associated with Donald Trump: $Tesla (TSLA.US)$ $MicroStrategy (MSTR.US)$ $Coinbase (COIN.US)$ $Riot Platforms (RIOT.US)$ $CleanSpark (CLSK.US)$ $Texas Instruments (TXN.US)$ $Evercore (EVR.US)$ $Cheniere Energy (LNG.US)$ $Intel (INTC.US)$ $Ford Motor (F.US)$ $Goldman Sachs (GS.US)$ $Wells Fargo & Co (WFC.US)$ $Steel Dynamics (STLD.US)$ $MARA Holdings (MARA.US)$ $Morgan Stanley (MS.US)$ $Bank of America (BAC.US)$ $JPMorgan (JPM.US)$ $Deere (DE.US)$ $Applied Materials (AMAT.US)$ $Peabody Energy (BTU.US)$ $KLA Corp (KLAC.US)$ $Occidental Petroleum (OXY.US)$ $Chevron (CVX.US)$ $Humana (HUM.US)$ $ConocoPhillips (COP.US)$ $Nucor (NUE.US)$ $General Motors (GM.US)$ $Merck & Co (MRK.US)$ $Exxon Mobil (XOM.US)$ $UnitedHealth (UNH.US)$ $Fluor (FLR.US)$ $Eli Lilly and Co (LLY.US)$ $Rumble (RUM.US)$ $Trump Media & Technology (DJT.US)$ $Tractor Supply (TSCO.US)$ $Phunware (PHUN.US)$
U.S Election & Bond Market
During U.S. presidential elections, Treasury bonds often experience specific trends:

1. Increased Demand for Safety: Investors may flock to Treasury bonds as a safe haven amid the uncertainty surrounding election outcomes, leading to rising prices and falling yields.
2. Yield Movements: Yields on Treasury bonds may decline if demand increases. Conversely, if investors anticipate a favorable outcome for economic growth, yields might rise as they shift to riskier assets.
3. Market Volatility: The anticipation of policy changes from the new administration can lead to fluctuations in bond prices, reflecting changes in investor sentiment about future interest rates and economic conditions.
4. Policy Speculation: Depending on the candidates’ platforms, market participants may speculate on fiscal policies, which can influence bond market dynamics—expansionary policies might lead to concerns about inflation and higher future rates

Overall, Treasury bonds often serve as a barometer for investor sentiment during elections, reflecting the balance between safety and risk appetite.
U.S. Election and Indices
During U.S. presidential elections, U.S. indices typically experience the following trends:

1. Increased Volatility: Markets often see heightened volatility due to uncertainty about election outcomes and potential policy changes.
2. Sector Performance Variation: Different sectors may react differently depending on the candidates’ platforms, with some industries benefiting from proposed policies while others may be negatively impacted.
3. Pre-Election Rally: Leading up to the election, there may be a rally as investors position themselves based on anticipated outcomes, especially if a candidate is viewed favorably for business.
4. Post-Election Reactions: After the election, indices may either rally or decline significantly depending on market perceptions of the new administration’s policies and their expected economic impact.
5. Long-Term Trends: Historically, markets have shown resilience and tend to perform well in the longer term, regardless of the election outcome.

Overall, U.S. indices reflect investor sentiment and expectations about the future, leading to dynamic movements during election cycles.
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