US election may fail to deliver the market catalyst many expect

The U.S. presidential election is right around the corner, and while everyone’s focused on Trump vs. Harris, financial markets might not care all that much.

According to the latest NBC News poll, Trump and Harris are neck and neck, but investors aren’t placing all their chips on the election changing much. In fact, many are saying the market is already pricing in a Trump win, maybe even a full Republican sweep.

Investors are skeptical

Stocks have been having a good year, with the S&P 500 up 22%, and the Dow and S&P both coming off their best six-week rally of the year. Historical data even suggests the market does well after a strong pre-election run.

According to Sam Stovall, chief strategist at CFRA Research, there’s usually a “further improvement” in November and December when this happens.

But let’s be clear, history doesn’t guarantee anything, and some investors are keeping a close eye on sectors like communication services, financials, and IT to drive growth. Consumer staples, materials, and energy? Not so much.

And let’s get one thing straight. Investors have learned not to bet too much on election promises when it comes to market performance.

Remember Trump’s 2016 win? People thought energy stocks would soar, but the sector underperformed. Same thing with Biden’s push for renewables in 2020. Didn’t pan out as expected.

But investors shouldn’t even be focusing on politics. Though there’s some hope that if Harris wins and we get a split Congress—Democrats in the House, Republicans in the Senate—it could be a good thing for stocks. 

Why? Because nothing will get passed, especially not any tax hikes for businesses or individuals. And if this year has been anything to go by, when stocks go up, Bitcoin goes up.

Now, if Trump wins, stock markets may cheer, but it could raise questions about trade. Trump wants to throw 100% tariffs at the world, and that could mess with global trade. Tariffs slow down economies, and that’s bad news for crypto.

Delayed election results could mean big volatility

One big risk looming over the election? Delays. If the race is too close to call, we could be stuck waiting for a while. That kind of uncertainty is a breeding ground for market volatility.

Monica Guerra from Morgan Stanley says a delayed result is pretty likely. With tight races and mail-in ballots slowing down the count, we could see days, maybe even weeks, before we know who the winner is. And that’ll send volatility through the roof.

After the 2020 election, the Cboe Volatility Index shot up by 40% for three days until Biden was declared the winner. In 2000, during the Bush-Gore fiasco, volatility lasted more than 30 days, all the way through December.

Investors are being told to keep their long-term goals in mind and prepare for some market turbulence around the election. “We encourage investors to keep their long-term objectives in mind during periods of uncertainty and position for election-related volatility,” Guerra said.

But the reality is, some investors aren’t waiting around for clarity. They’re already positioning for a bullish run to close out the year. Baird is telling investors to “lean into the uncertainty” and go risk-on with high-growth sectors and assets.

Bitcoin and crypto markets with the election

Over the last week alone, Bitcoin surged 9%, almost hitting $69,000 before pulling back to settle near $67,000. Year-to-date, Bitcoin has climbed 59%, defying market expectations amid uncertainty.

The influx of institutional money is a big reason why. Spot ETFs have attracted over $20 billion in inflows, with $1.5 billion coming in just last week. It’s the fastest growth in ETF history.

Trump is seen as the pro-crypto candidate. He’s talked about building a strategic Bitcoin reserve and loosening regulations if he wins.

Betting markets have already priced in a 60% chance of a Trump win, and investors are piling into crypto, expecting favorable policies under a second Trump term.

But Harris isn’t anti-crypto either. In her own way, she has promised a clearer regulatory framework. It’s not all about the election though. Broader economic conditions are playing a huge role in driving Bitcoin’s price action.

Central banks are easing monetary policy worldwide, and that’s a boon for risk assets like crypto. Rate cuts from the Federal Reserve and easing measures from China have set the stage for higher returns in volatile assets like Bitcoin.

The market is showing remarkable resilience, with Bitcoin bouncing back from fears of sell-offs tied to the delayed repayments from the Mt. Gox and FTX collapses. At press time, Bitcoin was worth $67,402.