INTRODUCTION
A long and often divisive Presidential election season ended with a victory for Republican former President Donald Trump over Democratic Vice President Kamala Harris. The outcome of US elections has historically played a significant role in shaping the financial markets. As the largest economy in the world, changes in US political leadership often signal shifts in economic policies, trade regulations, and international relations, which affect global markets. For ETFs, the focus often lies on sector-specific impacts driven by anticipated regulatory and fiscal policies, while for cryptocurrencies the driving factors are often represented by regulatory clarity and monetary policy expectations. President-elect Trump has already proposed several specific economic policies that could represent a notable change from current and past policies. For financial instruments like ETFs and cryptocurrencies, the implications are multifaceted.
IMPACT ON ETFs
The outcome of U.S. elections significantly affected various sectors within the ETF market, as the policies that will be adopted by the new Trump administration will support some industries while on the other hand will hinder other economic sectors.
ETFs focused on fossil fuels, such as the Energy Select Sector SPDR Fund (XLE), have benefited from Trump’s election (S&P 500 Energy index went up since the election) due to his policies heavily in favor of fossil fuel energy. Trump campaigned on a three-word energy policy: “Drill, baby, drill.” And in accordance to this statement plans to increase oil’s production and demand, and approve Gulf Coast projects to liquefy and ship natural gas abroad (that were paused this year by Biden’s Energy Department). On the contrary, clean energy ETFs have sold off heavily since the election, with Trump threatening to ‘rescind all unspent funds’ under the Inflation Reduction Act (IRA) – the signature climate policy of the Joe Biden administration. However, many experts do not foresee a wholescale repeal, given the benefit it has already produced in terms of jobs and investment for many Republican states.
Furthermore, ETFs tracking sectors like manufacturing industries, financial services and small-cap companies (that are more domestically focused), may benefit from policies favoring tax cuts and deregulations. Consequently, ETFs such as the iShares Russell 2000 ETF (IWM) and the Industrial Select Sector SPDR Fund (XLI) experienced positive performances since Trump's victory, with a significant increase in investments in U.S. small-cap ETFs.
Finally, ETFs with significant exposure to Chinese markets were affected negatively due to Trump’s protectionist trade policies (tariffs on Chinese imports, especially electric vehicles). However, experts believe that China will redouble its efforts to boost the economy with fiscal stimulus as an insurance policy against any new US trade barriers.
IMPACT ON CRYTOCURRENCIES:
The outcome of the U.S. election has historically influenced the cryptocurrency market, affecting investor sentiment and cryptocurrencies prices. Following the election results, Bitcoin's price reached new highs, surpassing $75k and in the weeks that followed topped $90k for the first time. Similarly, Ethereum experienced a price rally, reflecting a broader positive sentiment in the crypto market post-election. Charlie Morris, chief investment officer at ByteTree Asset Management, said: “The US election was well received by crypto and has brought forward the bullish case.”
The reason behind this historical rise are the pro-crypto policies promised by Trump during his campaign. Crypto investors hope that would be able to push through legislative and regulatory changes that will benefit the market leading to increased adoption and investment. Trump has already named Paul Atkins, a crypto advocate, as the next head of the Securities Exchange Commission, replacing Gary Gensler, who has been leading the U.S. government’s crackdown on the crypto industry. In addition, Trump recently repeated his campaign promise to set up a Bitcoin Strategic Reserve, which would require the Treasury Department to purchase billions of dollars’ worth of the cryptocurrency and hold it as a “permanent national asset.”
CONCLUSION:
The outcome of U.S. elections undeniably shapes the financial landscape, influencing ETFs and cryptocurrencies in distinct but interconnected ways. For investors, understanding these nuanced impacts is essential to navigating the post-election market environment and capitalizing on emerging opportunities in both traditional and digital assets.
BIBLIOGRAPHY:
“ETF Winners and Losers: Election Edition” (Morningstar)
“Does the US election matter for markets?” (Vanguard)
“The Hysterical Crypto Bubble Somehow Became Respectable” (The Atlantic)
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