2024 US Elections and the Stock Market: Strategies for Capitalising on Volatility with CFDs

Tan Peng Chien, Dealer | Contract for Differences

Peng Chien graduated from the University of London with a Bachelor’s Degree in Banking and Finance. As a dealer, it is essential that he keeps up with all aspects of the markets and therefore spends most of his time exploring new strategies and analyzing the financial markets.

The 2024 US Elections are anticipated to have a substantial impact on the stock market, not only in the general election period but in the months leading up to it. Investors and traders will be closely monitoring the economic policies and agendas of the candidates, the balance of power in Congress, and the broader political landscape to assess how these factors might influence market performance. US pre-market trading could experience heightened volatility. Additionally, financial tools like equity Contracts for Difference (CFDs) offer traders opportunities to benefit from the market uncertainty caused by the elections.

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Historically, financial markets tend to experience increased volatility as the US elections approach. This is largely due to the uncertainty about future policies on issues like taxes, trade, and regulations. The lack of clarity regarding the direction of government policy can cause investors to adopt a cautious approach, leading to fluctuations in stock prices. In 2024, key issues like inflation, interest rates, and global political tensions are expected to amplify market sensitivity.

The outcome of the 2024 US Elections, which feature a contest between former President Donald Trump and current Vice President Kamala Harris, will shape the economic and regulatory landscape, influencing various sectors such as energy, healthcare, and technology. How the policies of each candidate are perceived by investors will have a direct impact on stock market trends.

The 2024 US Elections will likely highlight stark policy contrasts, especially between the Republican and Democratic candidates. Each side has different priorities that will affect specific sectors of the economy.

1. Energy
   If Kamala Harris were to win, her administration would likely promote green energy initiatives, emphasising investments in renewable sources like solar and wind while imposing stricter regulations on fossil fuels. This could benefit companies focused on renewable energy but negatively impact traditional oil and gas firms. Conversely, under a Trump administration, the emphasis could be on deregulation, which might provide a boost to oil, gas, and other fossil fuel companies.
2. Healthcare
   Healthcare is another pivotal area of divergence. A Harris victory could see the implementation of broader healthcare reforms, which may benefit hospital systems and healthcare providers but could place price pressures on pharmaceutical companies through potential price controls. In contrast, Trump’s policies would likely lean towards maintaining the status quo in healthcare, favouring market-based solutions that may boost pharmaceutical and private insurance companies.
3. Technology
   Both major candidates support the growth of the technology sector, but their regulatory approaches differ. Harris might impose stricter oversight on privacy, data protection, and monopolistic practices, which could lead to increased scrutiny of big tech companies. Trump, in contrast, would likely continue with minimal regulatory intervention, which could be favourable to tech giants and corporate America more broadly.

Beyond the presidential race, the composition of Congress plays a crucial role in determining the scope and speed of policy changes. When different parties control the White House and Congress, it often leads to legislative gridlock, which markets generally find favourable because it prevents rapid, sweeping changes. A divided government is perceived as a stabilising factor for investors, as it minimises uncertainty and reduces the likelihood of major policy shifts.

However, if one party secures both the Presidency and control of Congress, it could lead to more aggressive legislative changes. A Democratic sweep might result in higher corporate taxes and increased regulation, which could negatively affect large corporations and financial institutions. A Republican-controlled government could continue pursuing tax cuts and deregulation, which would likely boost corporate earnings and stock prices in certain sectors.

US pre-market trading tends to be particularly volatile during election periods. Pre-market hours allow investors to react to overnight news, such as early election results or vote projections, before the official market opens. For example, in the 2020 US Elections, pre-market trading experienced significant fluctuations as election night results came in, reflecting the market’s immediate reaction to potential outcomes.

For the 2024 US Elections, pre-market volatility is expected to be high, especially in scenarios where the election results are delayed or contested. If exit polls or early state results show a clear trajectory for one candidate, the markets may start pricing in the potential impact of that candidate’s policies before the official market opens. On the other hand, uncertainty or legal disputes over the results could cause significant market anxiety, leading investors to shift to safe-haven assets like gold or bonds while moving away from equities.

Contracts for Difference (CFDs) present a flexible tool for traders to profit from election-induced market swings. CFDs allow investors to speculate on price movements without owning the underlying asset, making them particularly useful for short-term trades in volatile environments like the US Elections.

1. Exploiting Volatility: The sharp price swings expected during the election period can be capitalised on through CFDs. Traders can go long (buy) if they expect market optimism about a candidate’s policies, or short (sell) if they anticipate a negative market reaction. For example, traders expecting a Trump victory might go long on energy sector stocks, anticipating a regulatory environment favourable to oil and gas companies. Conversely, if a Harris victory seems likely, traders could short fossil fuel companies while going long on renewable energy firms.
2. Sector-Specific CFD Trading: CFDs also allow for more targeted sector trading. For example, if it’s believed that healthcare stocks will face headwinds due to regulatory reforms under a Democratic administration, traders can short healthcare-related CFDs. Similarly, those expecting regulatory scrutiny of big tech could use CFDs to hedge against potential losses in that sector.
3. Risk Management and Hedging: CFDs are also useful for hedging risks in existing portfolios. Investors who have long-term positions in sectors likely to be negatively affected by election results, such as technology or pharmaceuticals, can use CFDs to hedge those positions by shorting the relevant stocks. This strategy allows investors to mitigate potential losses while retaining their core holdings.

The 2024 US Elections are likely to create significant turbulence in financial markets, especially in the lead-up and immediate aftermath of the election. With key issues like taxes, healthcare, and energy policy at stake, sector-specific market reactions will be driven by the differing economic priorities of the candidates. Pre-market trading is expected to experience considerable volatility as investors respond to real-time election news. Additionally, CFDs provide a flexible trading option for investors looking to capitalise on or hedge against election-related market swings. Given the uncertainty and potential for rapid market movements, traders should implement sound risk management strategies, such as setting stop-loss orders or using hedging techniques to protect their portfolios during this unpredictable period.

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