Why US Presidential Elections Matter for Indian Financial Markets

With Mr. Obama stepping down as the Potus, Donald Trump is welcomed in the White House as the new head of responsibilities for the world’s top country- The States. Now, how is that possibly going to affect the financial markets and why is it a matter of concern or even if it is a concern at all- for an individual investor or businesses in general?

Well, the world’s connected and in the financial markets- it shows. The uncertainty brought about by the presidential elections is something that either adds or lessens the volatility experienced in the markets depending upon what it results to, more recently- reelections being the better of the lot. Again, how intrinsically can this be asserted?

To begin with, President Obama not running for reelections has resulted in financial markets being bereft of the stability. It has been noted, in general that in such situations – when the incumbent does not stand for reelections, the S&P 500 average of 2.8% has fallen down in the presidential election years, since the year 1928. Whereas, at times when the incumbent does stand for reelections the S&P 500 averaged returns of 12.6% (For years 1928-2014 the average comes about 7.5%) hinting at the favorable idea of reelections as it infers continuity without much aberrations.

As is apparent- the president standing for reelection is someone who ought to have developed a tendency of promoting market friendly policies and improving upon dealing with economic issues. It’s all correlated – the rate of economic growth, the unemployment levels, other economic activities and the likes. He will do much to support businesses, and add to flourishing economy representing stability to prove his capabilities that he still lives up to his promises of running a well organized state.

Then, speaking about the present situation, the markets seem prone to changing economic policies, regulations and all those economic activities which have direct impact on the pricing and valuations. The analysts have mixed opinions on how is it going to be- whether it will propel or dispel the investment cycles.

According to a study published in the Journal of Business & Economics Research in 2014, the Dow Jones Industrial Average nearly tripled under Democratic President Franklin D. Roosevelt. Much about the same has been the case with Barack Obama presidency. The Trump’s trumpet is still to open for the prophecy to come to life.

Written by Namisha Kathpalia

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