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Stocks May Turn Defensive with US Presidential Election Eyed

Stocks May Turn Defensive with US Presidential Election Eyed

Ilya Spivak, Head Strategist, APAC


  • US presidential election may take top billing as 2020 gets underway
  • Range of outcomes may have more “risk-off” vs. “risk-on” scenarios
  • Technical cues warn of a defensive turn in key global stock markets

It probably goes without saying that the US presidential election and its impact on financial markets will be one of the major macro narratives preoccupying investors in 2020. The Fed’s apparent intent to fade into the background – it said this month that rates are expected to remain unchanged next year and signaled the bar is very high for that to be reconsidered – probably sharpens the focus on political considerations.

US President Donald Trump has been impeached in the House of Representatives, but markets seem to generally assume that he will be acquitted in a party-line vote in the Senate. That means he will remain at the top of the Republican Party ticket. Beyond that, speculation ahead of the vote in early November will be concerned with a variety of variables.


The first key question is, who will be the Democratic Party nominee? The second – how will whoever that is stack up against Mr Trump in the markets’ estimation? The Democratic field offers a broad range of perspectives, but a clear dichotomy pitting those further to the political left and those closer to the center appears to have emerged among the leading candidates.

As ever, markets hate uncertainty most of all. This means that they are likely to be more uneasy with the prospect of electing someone promising a comparatively more radical platform. With that in mind, nominating either Bernie Sanders or Elizabeth Warren – both of whom favor rapid delivery of big-splash economic policy changes – might be met with relatively more anxiety than Joe Biden or Pete Buttigieg.


Next, it is important to consider the markets’ perspective on the sitting President. They celebrated his election in 2016, inspired by hopes for tax cuts and deregulation and dismissive of trade war prospects as mere rhetoric. Since then, it has become clear that Mr Trump was entirely serious about forcing realignment of the US’ key trade relationships – especially with China – and willing to “rock the boat” to this end.

That has not gone unnoticed. A rise in Mr Trump’s job approval rating stalled alongside the widely-watched gauge of US consumer confidence from the University of Michigan just as PMI data pointed to a peak in US economic growth. That this occurred just as the administration’s economic policy focus shifted from taxes to trade – as evidenced by a surge in searches for news stories containing the key term “trade war” – seems hardly accidental.

Stocks May Turn Defensive with US Presidential Election Eyed

If Trump is reelected, he and his team might reasonably conclude that they’ve secured a mandate to continue pursuing a combative approach to trade relations. Indeed, recent comments from US Trade Representative Robert Lighthizer suggest that the White House may be preparing to tighten the screws on partners in the European Union (EU) even as negotiating the next phase of the US-China trade deal gets underway.

With all of this in mind, the prospect of a second Trump term may be met with far less enthusiasm from investors than the first. This coupled with markets’ likely assessment of the Democratic candidate alternatives suggests that the range of election outcome scenarios offers more “risk-off” permutations (at various degrees of severity) than “risk-on” ones.


That might make for a defensive tone as portfolios are rebalanced for an election-focused year. Technical positioning seems to foreshadow as much. Negative RSI divergence has emerged even as stock market benchmarks in the US, the Eurozone, Japan and Hong Kong hit meaningful – and in some cases record-setting – highs, warning of ebbing momentum that may precede reversal.

S&P 500

S&P 500 price chart - daily

S&P 500 chart created using TradingView


Stocks May Turn Defensive with US Presidential Election Eyed

Euro Stoxx 50 chart created using TradingView


Stocks May Turn Defensive with US Presidential Election Eyed

Nikkei 225 chart created using TradingView


Stocks May Turn Defensive with US Presidential Election Eyed

Hang Seng Index chart created using TradingView


--- Written by Ilya Spivak, Currency Strategist for

To contact Ilya, use the comments section below or @IlyaSpivak on Twitter

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.