The U.S. Presidential Elections Are Electric! - Here’s What I Learned
To Investors,
The 2024 U.S. presidential election has been electric. This year’s election between Vice President Kamala Harris and Former President Donald Trump was an entertaining and informative spectacle (in the most positive way) initially because of two key events:
Since Donald Trump was unseated as he ran for his second term in 2020 his political opponents have attempted to smear his name and drown him in multiple lawsuits that have failed to stick.
On the Democrat side, President Joe Biden was not tested by his party as the Democrats refused to host a Primary, during which other candidates could have ran against President Biden, then it was later made evident that President Biden’s old age had gotten the better of him and he would not be able to survive a second presidential term. The Democrats then “hot-swapped” Biden for VP Kamala Harris - embarrassingly forcing Biden to abdicate.
That was the drama before the elected candidates began actively campaigning.
What I learned during their campaign months and especially yesterday during the national voting in America, is that people move money actively based on the election predictions. Let's look at a few key financial markets as evidence.
Polymarket
In previous years there’s always been a selected agency such as the Associated Press which usually publishes polls on which candidate might win the presidential elections, and everyone would use that as the source of truth and information on sentiment. This year it seems like many people were focusing on the prediction markets, largely hosted by Polymarket.
Polymarket is a prediction market platform where people can bet on the outcomes of real-world events, like elections, sports events, or even things like the price of Bitcoin. For South Africans its the same as going on the Hollywood Bets site and being able to bet on who you think the president of the country will be.
For a while these prediction markets had the race neck-and-neck. Then as election day got closer more money started favouring Trump to win with an astounding margin.
And they were right…
Bitcoin
Trump ran on the promise that he won’t let regulators take away people's bitcoin and that he would empower the crypto industry to thrive. Yesterday (election day) as it became clearer throughout the day that Trump might take the election, the price of bitcoin shot all the way up to a new all-time high of $75 000.
U.S. Dollar
At the same time, because Americans believed in Trump’s policies, looking at the DXY index, the U.S dollar strengthened at a rapid pace
Putting pressure on key currencies including the Japanese Yen and the Chinese Yuan.
It's important to note that that situation would have been a bit more of a headache for China because the Yuan is managed by the Chinese central bank.
In short, the PBOC sets a daily exchange rate and they sell or buy U.S. dollars in the market to ensure that the USD/CNY exchange rate for that day doesn’t deviate larger than 2% on either side. Given the movements yesterday in the dollar, the PBOC would have likely been selling U.S. dollars to control movements.
Stock Markets
Overnight Tesla’s stock price also shot up around 15%, and DJT went up 11%.
Overall sentiment in the economy appears to be positive in the U.S. with the S&P 500 up 12% and the Nasdaq up 14% over the last 3 months or so leading up to the presidential elections.
U.S. presidential elections really do move markets and it was fascinating to watch as a foreigner.
Adam Kobeissi also said something interesting in a podcast episode I listened to today:
If you only invested in election years for the last 100 years, you're doing great… If you look at the data... the market ends higher on average [in an election year] and in the case that Republicans win around 15% average annual return, in the case that Democrats win it is around 10.
As a capital allocator it's important to understand what moves different markets, especially human psychology and how sentiment determines the performance of an investment position.
I hope you enjoyed reading this letter.
On the journey to becoming a master capital allocator, one lesson down, a billion more to go.
Hope you have a great day
-Mansa