There is no doubt that the presidential election is bound to dramatically alter the course of world events. However, there are many things it will affect which we don’t often consider. A good example of this is the stock markets. The markets are always hugely affected by the US presidential election – not just in the US, but across the world. But how are they affected, and what can we expect to see this time around that might be different? Let’ take a look at some of the major ways that the election will change the stock markets.
Hirsch & The Presidential Cycle
Yale Hirsch developed a theory many years ago which claims that the stock markets are influenced by the ‘presidential cycle’. This is based on the four-year cycle between elections, and there is something behind the idea. In essence, the theory claims that the US stock markets are weakest in the year following a presidential election. The markets then gradually improve year upon year, until the election of the next president. This is the theory, but is there sufficient evidence for it?
The Theory In Practice
In the early 1990s in particular, the Hirsch presidential theory seemed to play out fairly well. For a while, it did seem as though the theory could be used to accurately predict the stock markets following an election. However, it seems as though it has been less accurate in the past twenty years or so. Why might this be? One opposing theory claims that it is due to something called biased expectations. Biased Expectations Theory states that supply and demand for different securities are not stable. Therefore they are subject to change.
What About This Time Around?
The 2016 presidential election is clearly particularly interesting in this regard. This is because it is such an unexpected list of candidates. So what is likely to happen this time for the stock markets? Most experts are agreed that stocks will plunge if Trump is elected, at least temporarily. This is because of his plans to renegotiate the national debt. However, Clinton being elected could also mean bad things for the US economy, which will affect stock markets worldwide. The betting odds for the 2016 presidential election show that Hillary Clinton is more likely to win. But whatever the result is, there is no denying that it will dramatically affect the stock markets everywhere.
What This Means For You
If you are wondering what effect this might have on your own personal finances, then you are not alone. This is a fair question to ask, as the presidential election will always have some kind of effect on individual circumstances. If you are investe in any kind of solid capital, then you might want to consider your options in the coming year. The last thing you want is to find that your investments are worth nothing after the election. For anyone who is concerned with their own financial position, watching the election closely is a very good idea.