As the biggest market in the world, the US stock market is one of the first few markets that Singaporeans think about when diversifying their portfolio globally. After all, many big tech companies such as Apple, Tesla, Nvidia and Amazon are listed in the US.
Economically, the US also has a huge impact globally. We’ve already seen the impact of the Federal Reserve increasing interest rates over the past few years, which has, in turn, led to an increase in interest rates back home. With the US being such a big factor in the world of investing, it’s no surprise that the US elections have always had an impact on stock market trends.
In this article, we’ll dig deeper into how the US elections have affected Singaporean investors and understand its impact on the stock market.
The Impact of the US Elections on the US Stock Market
The impact of the US elections on the US stock market can be both short-term and long-term, with each influencing market behaviour in different ways.
Short-term impacts
In the short term, the uncertainty leading up to the election can create volatility as investors react to potential policy shifts, candidates' platforms, and any unexpected developments. This often leads to heightened market fluctuations as traders adjust their expectations, moving quickly to respond to new information.
The immediate aftermath of the election can also trigger rapid market movements, as investors recalibrate based on the perceived direction of fiscal and monetary policies, regulatory changes, and government priorities.
With the 2024 US elections already behind us, let’s take a closer look at how the stock market performed a day after Trump won the elections.
Source: Google
According to Reuters, US stocks rallied sharply to close at record highs on Wednesday after Republican Donald Trump won the 2024 US presidential election.
Trump-linked stocks such as Tesla, which Elon Musk owns, also experienced a sharp rally of 14.75% at the day’s close on Wednesday.
These rallies are likely driven by a surge in investor confidence, as Trump pledged to raise tariffs, reduce taxes, and cut regulations, prompting investors to flock to a variety of assets expected to benefit from these policies.
Be that as it may, rallies right after election day are not always true. Investors should not expect a straight shot up in the market after polls close, as evident from historical data.
Thus, for Singaporeans trading US stocks, it is still a gamble to capitalise on election day, and the day after returns.
Long-term impacts
In the long term, the US elections shape the broader economic environment, influencing business sentiment, investment strategies, and economic growth.
A change in government can alter the trajectory of tax policies, infrastructure projects, and regulatory frameworks, all of which affect corporate profitability and, ultimately, stock performance. For example, if a new administration pushes for tax cuts or regulatory easing, certain industries may see a boost in profits and stock prices.
On the other hand, policies that increase corporate taxes or impose stricter regulations could have the opposite effect, creating headwinds for businesses and negatively impacting stock values.
Market Performance during Election Years
A study by T.RowePrice has revealed that “average returns for the S&P 500 have been modestly lower in presidential election years relative to other years. Market volatility was also lower, on average, in many of the periods in and around past presidential elections.”
The Impact of the US Elections on Global Market Stability
Although the US is a major player in the world’s economy, the same cannot be said when it comes to the global markets.
While shifts in US fiscal and monetary policies—like tax reforms or interest rate changes—can affect global demand, currency values, and investment flows, along with influencing trade relations and geopolitical dynamics, the global stock market is able to shake off most of its effects.
For instance, in 2018, Trump started a trade war with China that negatively impacted the S&P 500 and Nasdaq that year. However, global markets were largely unaffected, according to Charles Schwab.
To What Extent Should Singaporean Investors Care?
For Singaporean investors, the US elections should be on your radar but not to the extent that you should change your long-term strategies.
For those who are trading in the short term, the US elections will be of great concern as the market tends to shift wildly leading up to the elections. Policy changes may also affect the US stock market for a few years.
On the other hand for Singaporean investors who have a well-diversified portfolio with a long-term strategy, the US elections, regardless of the outcome, won’t have much of an impact on your investments.
The bottom line for investors is to continue investing based on fundamentals with a long-term and globally diversified portfolio.
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