Three scenarios for stocks after US election

Three scenarios for stocks after US election

2020-10-09 • Updated

Saxo Bank claimed that contested election may create the strongest political risk in over a decade, and as a result, lead to the stock’s sell-off. Indeed, the market is under huge pressure now amid the coronavirus pandemic and all related problems. A possible shift in the policy of the world’s largest economy will shake the whole market.

Saxo Bank foresees three scenarios: a contested election, a clean sweep by Biden, and a win by Trump. No doubt that the market volatility will increase around November’s election. It’s important to get ready. In general, the US economic direction won’t change enormously as any chosen president will take nearly the same actions after the inauguration. Both of them will inject extra money to support economic growth and force the Fed for further easing of financial conditions. However, some differences may still take place, which will influence the market in various ways.  

Stocks

Looking back on Trump’s governance, the stock market has performed quite well. The corporate sector has been even boosted by Trump’s policies of lower tax pays and softer government control. Speaking about Biden’s victory, on the one hand, investors may be encouraged by the large-scale stimulus package, and as a result, stocks may rise.

On the flip side, Biden’s new policy may introduce higher taxes. Saxo Bank counted that if Biden increases tax rates by the amount he has already proposed, S&P 500 will fall by 9%. However, it is still a chance that Biden won’t make any tax changes due to the current economic downfall.

Enormous supportive government measures helped stocks to surge above pre-pandemic levels. That’s why investors now feel confident that the economic activity will rebound from the coronavirus slump with fewer losses than after the 2008 financial crisis.

Commodities

As for commodities, Saxo Banks has bullish prospects on precious metals, and especially gold. The main reasons are the weakening US dollar and the inflation hedge.  “Following a year where gold is up more than 20% and silver double that, it is a bold call to look for further gains”. They forecast that gold will reach $2 000 by the year-end.

The outlook for the oil market isn’t so bright. According to Saxo Bank, oil prices will fluctuate in the $38-$48 corridor and should escape it only during the first half of the next year.

Remember that it actually doesn’t matter for a trader where prices will go: up or down, as you can open both buy and sell trades. Catch the market movement and join the flow!

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Technical tips

S&P 500

Let’s look what’s happening now on the charts. S&P 500 has skyrocketed to highs, unseen almost a month. The move above the high of September 4 at 3 480 will drive the stock index to the record high of 3 580. On the flip side, if it falls below the 200-period moving average of 3 390, it will drop to the 100-period moving average of 3 330.

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Gold

XAU/USD is trying to break through the month trendline. If it manages to do so, it will rise to the 50-day moving average of $1 940 and then to the high of September 16 of $1 960. The move below the key psychological mark of $1 900 will push gold to the next support of $1 875.

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