The analysis that U.S. stocks will gain more if Trump turns the table is
prevailing financial markets, which is mainly based on the speculation
that Biden has a good chance of significantly raising capital gains tax
rates after coming to power. According to Biden's platform, he will
increase the tax rate on capital gains to 39.6% from 20% for taxpayers
earning more than $1 million annually. As a result, investors tend to be
bearish on U.S. stocks if Biden wins out, considering Trump has been
playing a positive role in stimulating the stock market. The concerns of
financial markets come not only the presidential election but also the
full control of Congress. Before the scandal revealed, polls had been
showing that the Democrats could both regain power in the White House
and take control of Congress. Now that Biden has been involved in the
scandal, it is estimated that Trump will win the re-election, but the
Democrats will take charge of the House and Senate. In this case, Trump
will find the next four years extremely difficult.
Since the situation now is complicated and possible results are various, investors
may either exit the market temporarily, waiting for more details, or
deploy hedging strategies in advance. Previous statistics show that U.S.
stocks see rise more often than fall in election years, but the past
four election years (2016, 2012, 2008, and 2004) all witnessed an
overall drop in U.S. stocks in October. Specifically, the stocks
dwindled widely even in the second half of October, indicating investors
of these years did not deploy their trades until the election results
came in. Looking ahead, if the U.S. stocks continue to retreat in the
next two weeks, the DXY and the Japanese yen will embrace gains, but
gold will struggle in playing the role of a safe haven, considering the
market performance since March that gold prices keep mirroring stock
prices.
Notably, the negotiations between the EU and the UK are teetering on the brink, which may hamper the prices of GBP and EUR and
put a premium on the greenback. This week, Trump and Biden will face off
again on the morning of October 23 (Friday, GMT+8), and all eyes will
be on whether Trump can make use of the scandal to turn the tide.
