How Political Elections Impact The Market And Economy

how political elections impact stock market economy

ETX Capital has carried out new market research looking at how the markets reacted to United States presidential elections, as well as how other global political events have affected the volatility index and the value of gold vs other investments. 

In the 2008 recession, gold increased in value significantly by 21%, but fell 16% after Obama’s 1st election. 2016 saw a huge drop in the value of gold, with Donald Trump’s presidential election. This election saw the biggest drop in the price of gold, falling 11%. As changes in markets regularly occur through everyday events, it raises the question, how do ‘global’ events impact them? ETX Capital studied the market, to see how it has differed throughout the years. 

The in-depth study focuses on the fluctuation of the Dow Jones, the price of Gold and the Volatility Index. The volatility index helps to determine when there is too much optimism or fear in the market. When sentiment reaches one extreme or the other, the market typically reverses course. This impacts everyone from long-term investors to day-traders in the stock market due to erratic elections.

The study looks at how volatile the stock markets became in the immediate aftermath of elections, looking at both the Dow Jones and the Volatility Index (VIX). Some of the key findings of the study were as follows: 

In 1996, the presidential election between Bill Clinton and Bob Dole saw the Dow Jones increase 26% following Clint 2008 bore witness to the recession, as Barack Obama and John McCain went head to head. The Dow Jones dropped 34% over the course of the election, in a hugely tumultuous period of financial history 2016’s election saw the battle of Donald Trump and Hillary Clinton. The Dow Jones increased 13% following Donald Trump’s election to office. Politics often impact the stock market and economy so it is to be expected each year.

Looking ahead to 2020, averages from previous years suggest that the Dow Jones will sit at an increase of around 3%. Global Events The 21st century has seen some remarkable global events, making a huge impact on the world both politically and economically. But how much sway do certain events have on the markets? 

In 2015, the Swiss Franc crash happened in tandem with an increase in gold value of 9.5%. Donald Trump’s 2016 October election saw the value of gold dramatically drop 11.9%, with the volatility rating down to 15.1. Following from Donald Trump’s election, Theresa May’s election increased the value of gold 2.1%, but saw a decrease in the volatility index. Elections and political powers can impact economic volatility.

The Volatility Index (VIX) helps to determine when there is too much optimism or fear in the market. When sentiment reaches one extreme or the other, the market typically reverses course. This helps to improve investor expectations regardless of the bear or bull markets taking place in the global economy.

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