On today’s "Super Tuesday" important preliminary decisions should be made. Statistics show that if Americans elect their president, prices will go up. But this time other rules could apply: Has incumbent Trump already shot his powder on the stock exchange?
The primary campaign for the US presidential election in November is in full swing. Who will become Trump’s democratic opponent should soon become clearer: On today’s "Super Tuesday" decisions will be made in 14 of 50 states.
This is also followed closely on the stock exchange. Election years are generally given a positive nimbus on the stock exchange. According to the US presidential cycle, prices rise in an election year.
"The US presidential cycle is one of the few functioning regular cycles in the financial world," explains market strategist Robert Rethfeld from "Wellenreiter-Invest".
High hit rate
In fact, the Dow Jones Index has followed this pattern for a good 120 years with impressive precision and a high hit rate. If the incumbent president is up for re-election, like Donald Trump in 2020, prices will rise in 83 percent of all cases in an election year.
With an average increase of almost eight percent, election years are the second best years on the stock market after the pre-election years (plus twelve percent).
Every beginning is difficult
The price gains are unevenly distributed over the election year. "At the beginning of an election year, stocks have a difficult time", emphasizes Dimitri Speck from Seasonax.
The Dow Jones, for example, tends to move slightly downwards in the first half of an election year. Only from July does the US leading index start to pick up strongly. Such a summer rally is extremely unusual on the stock market.
The rally reaches its first high point at the beginning of November – when the Americans are asked to vote. After a slight setback, it then continues upwards. The Dow tends to end the year at its annual high.
Stimuli for the economy
The reason for the price gains in the election year is obvious: shortly before the election, the incumbent president wants to present himself to the voters. He is pulling out all the stops to stimulate the economy. This in turn is reflected in rising stock exchange prices.
The tax cuts for the middle class that Trump’s Treasury Secretary Steven Mnuchin promised for September 2020 fit into this picture. But not a few market observers are not convinced that Trump had largely shot his powder at the beginning of his term in office.
Correction long overdue
Shares had recently benefited significantly from the major tax reform of 2017. "The company’s tax advantages flowed almost one-to-one into profit growth," said Salman Baig, portfolio manager at the Swiss asset manager Unigestion.
That spurred stock exchange prices in recent years. But now the US stock markets are already in the tenth year of the bull market, which has been running since March 2009. From a statistical point of view, a major correction was long overdue – even without any corona worries.
Come in addition: If Republican presidents stand up for re-election, the election year record is quite mixed. According to the stock exchange statistics expert Rethfeld, the stock exchanges tend to move sideways in such years.
Bloomberg vs. Trump
The Republican Trump is often referred to in the media as the "preferred candidate of the markets". But in the years of his tenure he has given the markets a great deal of uncertainty, especially in geopolitical terms.
Rethfeld is therefore convinced: "Of Trump’s possible democratic opponents, a Michael Bloomberg would certainly be welcome on Wall Street. After all, he is a Wall Street man himself."
Under a President Bloomberg, however, stocks would yield completely different shares than under Trump, emphasizes market expert Rethfeld. Above all, companies with a focus on the environment and sustainability would be in demand.