It’s undeniable that election season plays a critical role in shaping the current and future economic landscape. In 2020, the US stock market, which has always been sensitive to political shifts, experienced a range of movements that reflects the uncertainty and anticipation surrounding the election results.

In this article, we will go through the historical price movements of the US stock market during the 2020 US elections, offering traders a comprehensive overview of how elections can influence investor behaviour, market sentiment, and stock performance.

Held on November 3, 2020, the most recent US presidential election was one of the most closely followed elections in modern history. Despite the COVID-19 pandemic, the elections showcasing the battle between Donald Trump and Joe Biden, saw unprecedented levels of voter turnout and a significant increase in mail-in voting.

The election cycle was marked by intense debates, significant public and media scrutiny, and a deeply polarised electorate. Key issues dominating the campaign trails included the management of the COVID-19 pandemic, economic recovery plans, racial justice, and climate change policy. These themes not only influenced American public opinion but also had global stakeholders keenly watching, given the potential shifts in US foreign policy and international trade agreements.

The months and weeks following Election Day had the financial markets reacting to every major development, from campaign speeches to proposed policies on taxes, regulation, and public spending.

Market sentiment was particularly sensitive to polling data, swinging between optimism and caution as the lead between candidates narrowed or widened according to different polls.

This election was also notable for its prolonged ballot counting process, primarily due to the surge in mail-in votes. The uncertainty about the outcome led to heightened market volatility, as participants awaited clear signals on the direction of US policy for the next four years.

In the months leading up to the 2020 US elections, the stock market exhibited significant volatility, influenced by both election-related developments and the ongoing global pandemic.

Market conditions leading up to the US election (August – October 2020)

SPX500

During this period, the S&P 500 (SPX 500) saw fluctuations that could be attributed to the presidential campaigns and public opinion polls. For instance, the index experienced a decline of about 10% in September, primarily due to uncertainties over election outcomes and fears of a contested result.

Market movements in various sectors

Technology sector

Tech stocks, like Apple (AAPL) and Amazon (AMZN), reacted to the prospects of increased regulatory scrutiny proposed by both candidates. For instance, Apple stock dropped by as much as 24%. US presidential candidates discussing the tightening of policies around tech can lead to market uncertainty, which often results in price swings.

Healthcare sector

With COVID-19 a major issue in 2020, healthcare stocks were heavily affected by election rhetoric around healthcare policies. Aside from the issues regarding public healthcare and insurance, the COVID-19 vaccine development also affected how healthcare stocks were priced.

As an example, Pfizer (PFE), one of the pioneers of the COVID-19 vaccine research experienced volatile times as the stock price went through massive gains and losses, as the public reacted to the vaccine development process and the political debate over healthcare management.

Economic Data and Election Polling

Economic indicators and election polling data also played a role in how the stock markets moved. Positive economic data released in early October 2020 provided a temporary uplift to the US stock market, aiding in a recovery of earlier losses. However, as polling data showed a tight race, volatility increased once again, highlighting the markets’ sensitivity to political events.

Election Week Volatility

The week of the US presidential election in 2020 was marked by intense volatility in the stock market, as investors navigated the uncertainties of a hotly contested election. This period was characterised by sharp swings in major indices, reflecting the market's reaction to incoming results and the evolving political landscape.

Daily market movements during Elections Week

SPX500

US30

November 3, 2020 (Election Day)

Contrary to expectations of a bearish market, the US stock market rallied. The Standard and Poor’s 500 Index (SPX500) rallied by 2.7% while the Dow Jones Industrial Average (US30) surged by 3%. This price increase reflected the public’s optimism about a clear election outcome.

November 4, 2020

As the vote counting continued and no clear winner emerged, markets maintained their upward trajectory amidst the uncertainty. Buoyed by large tech stocks, US indices performed strongly as investors bet on the continuation of policies favorable to big tech.

November 5 – 6, 2020

As the winner of the US elections become more apparent, the markets continued to rally, showing the public’s confidence in Joe Biden. It's worth noting that investor confidence could also be attributed to a potentially divided government that would be less likely to implement significant regulatory changes.

Market sentiment and external factors

It’s worth noting that the market’s resilience during Elections week was also supported by other factors, such as the Federal Reserve's commitment to maintaining an accommodative monetary policy and positive news regarding COVID-19 vaccine trials, which provided an additional boost to investor sentiment.

Traders must consider that investors are quick to adjust their positions based on the latest news, demonstrating a clear sensitivity to the real-time developments in the electoral process. If you’re thinking of trading the 2024 US election season, it’s important to stay up to date with the latest market news and political events that can have a significant sway in market behaviour.

Post-election market reactions

Following the confirmation of Joe Biden as the President-elect in November 2020, the US stock market responded with an overall upward trajectory, reflecting relief and clarity among investors about the future political and economic landscape.

A week following the 2020 US election, major indices such as the SPX500 and the US 30 saw significant gains and reached new heights. By the second week of November, the SPX500 index rose by 12% from its November opening price, while the Dow saw a 14.5% surge.

This could be due to investors anticipating a more stable and predictable policy environment under the Biden administration.

Strategic insights for the 2024 US elections

Diversification
In trading, a diversified portfolio is important in hedging against sector-specific risks during elections. For stock traders, balancing your positions between technology, renewable energy, and healthcare can mitigate adverse impacts from sudden policy shifts. Some traders also dip their toes in other markets such as forex to hedge against huge shifts in the US stock market.

Market timing
The US election season is filled with short-term market fluctuations caused by election-related news. This initial public reaction allows for market opportunities to appear that traders can capitalise on. Make sure to plan your trades in advance and stay updated with market news to maximise these volatility spikes.

Keeping abreast of policy changes and proposed legislations during the election campaigns can offer early signals about which sectors might be favored or disadvantaged by the potential outcomes.

Getting a comprehensive overview of the US stock market’s historical performance can help traders reach a more accurate prediction of how it would perform in the months leading to the 2024 US elections. With Joe Biden and Donald Trump locked in for another rematch, traders are closely watching how their proposed policies would affect market dynamics and investor sentiment.

Stay informed and strategically prepared with ThinkMarkets. Maximise ThinkTraders’ extensive suite of analytical tools, price alerts, and exclusive features to seize opportunities that arise from the 2024 US election season.

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