With less than a week to go, the US election is fast approaching. The decision is likely to have a major impact on the world and financial markets. Both candidates are drumming up support wherever they can. With less than a week to go, no candidate has emerged as the clear winner. Instead, the race is very close and will be decided by the swing states, where the candidates are also very close. Interestingly, current Vice President Harris is leading the national polls, while ex-President Trump is leading the betting sites. Trump has also managed to regain a lot of ground after it looked like he was going to lose badly to Harris shortly after she entered the race. Although there is no clear winner yet, the race is currently boosting financial markets.
In particular, equities have resumed their rally after a weak summer and are back at record highs. Other factors, such as the hype around AI and strong earnings, particularly from technology companies, strongly supported the rally. More recently, the Fed's larger-than-expected rate cut has been a major contributor to the strong year for equities. On average, US election years also tend to be positive for equities. The technology-heavy S&P 500 and Nasdaq indices both rose by more than 20% for the year. The Dow Jones was up 15%, but has fallen back slightly and is currently up 12%. Small caps have struggled in the early part of the year, unable to match the gains of large caps. Nevertheless, the Russell 2000 Index is also up 10% before the latest surge. Figure 1 shows a comparison of the above indices through 2024.
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