The New York Stock Exchange believes in Trump

A.V. (TRANSLATED BY COSMIN GHIDOVEANU)
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The New York Stock Exchange believes in Trump

Shares on the US markets climbed yesterday after Trump declared victory

Treasury yields fall, traders betting on a smaller stimulus package

US stock markets believe in the victory of the current US president in the November 3 election, as their November evolution shows. US stock markets rose with the tech sector making significant gains after Republican Donald Trump announced himself the winner in the presidential election before all votes were counted. Moreover, Trump, who fought against Democrat Joe Biden, said again that "voting fraud is being attempted."

History shows that the US stock market is volatile in the election period, which has happened this year as well: on November 3rd, the day of the presidential election, the Dow Jones Industrial Average benchmark rose more than 500 points, but overnight it posted losses. Then, on November 4th, Dow Jones rose over 2% (close to 15:00 local time), S&P 500 - nearly 3%, and the Nasdaq Composite - more than 4%.

In recent history, US markets have favored Republicans immediately after the election. Thus, on the first day after the previous presidential election, in 2016, won by Republican Trump, against Democrat Hillary Clinton, the Dow Jones rose 1.4% (on November 9), and the S&P 500 - 1.11%.

On November 7, 2012, after the election was won by Democrat Barack Obama, who fought Republican Mitt Romney, the Dow Jones fell 2.3%, as did the S&P 500. On November 5, 2008, after the election was won by Obama again (against Republican John McCain), the Dow Jones fell 5% and the S&P 500 - 5.3%.

We note that Trump is also expected to win in Ohio, while Democratic candidate Biden is leading in Arizona. In addition, results in key states - Michigan, Wisconsin and Pennsylvania - could be known in just a few days.

Analysts say uncertainty over the outcome of the current election has led to a rise in bond yields.

Four years earlier, on November 3, 2004, after Republican George W. Bush emerged victorious in the White House race (against Democrat John Kerry), both the Dow Jones and the S&P 500 rose more than 1 percent.

However, on November 8, 2000, the day after the battle between George W. Bush and Al Gore, the S&P 500 and Dow Jones indices fell, as the winner was not immediately known.

Even though over time, markets have favored Republicans immediately after the elections, experts say that investors did better, in the long run, under Democrats. An analysis conducted this year by Financial Times showed that, while the initial market reaction to a Republican term was positive, over the longer term, investors do not get as well "rewarded" under Republicans, like they do under Democrats.

Also, an analysis of the performance of the American market depending on the parties in power shows that Democratic presidencies of Carter-Clinton-Obama produced an annual return of 14.9%, compared to 4.9% in the case of the Republican ones (the presidencies of Reagan-Bush Senior-Bush Jr.-Trump).

French investment bank Natixis shows that, after 1976, the average annualized return on markets under Democratic presidents was 14.3%, compared to 10.8% - under Republicans.

At the same time, an analysis of the performance of the American market according to the ruling parties shows that the Democratic Carter-Clinton-Obama presidencies produced an average annual return of 14.9%, compared to 4.9% in the case of the Republican presidencies. Bush Senior-Bush Jr.-Trump).

A CNBC analysis also indicates that elections have rarely had a lasting impact on stock prices, and history shows that stocks "usually do well," regardless of the party that controls the White House or Congress.

"I think people overestimate the importance of politics when it comes to investments," said David Kelly, chief strategist at JPMorgan Asset Management.

In the coming period, the big concern of investors will be to find out the result of the elections as soon as possible, especially since there are fears related to it possibly being disputed, which could affect the markets.

Ten-year treasury yields at their lowest level since October 18

US Treasury yields fell on November 3rd, reflecting the traders' bet, who believe Republicans will retain control of the Senate, amid a lower-than-expected future package of incentives.

That comes as the results of the November 3 presidential election failed to show a clear winner between the current president, Republican Donald Trump, and Democrat Joe Biden, former vice- president.

Yield on treasury securities with a maturity of ten years decreased by 9 basis points, to 0.766%, during the first half of November 4th, to the lowest level since October 18. Yield on 30-year securities fell 10 basis points, to 1.560%.

It should be noted that the yield on ten-year government bonds has fallen from a five-month high of 0.945% as Trump won Florida. The yield on 30-year treasury securities fell from a high of 1.757% recorded earlier in the trading session of November 4th.

We note that Trump is also expected to win in Ohio, while Democratic candidate Biden is leading in Arizona. In addition, results in key states - Michigan, Wisconsin and Pennsylvania - could be known in just a few days.

We note that Trump is also expected to win in Ohio, while Democratic candidate Biden is leading in Arizona. In addition, results in key states - Michigan, Wisconsin and Pennsylvania - could be known in just a few days.

Analysts say uncertainty over the outcome of the current election has led to an early rise in bond yields.

We note that Trump is also expected to win in Ohio, while Democratic candidate Biden is leading in Arizona. In addition, results in key states - Michigan, Wisconsin and Pennsylvania - could be known in just a few days.

Analysts say uncertainty over the outcome of the current election has led to a rise in bond yields.

Analyzing the evolution of government bond yields the day after the US elections in the last 20 years, it is observed that they went down, for the most part. The 2016 election was the exception. On November 9, 2016, the day after the election won by Republican Donald Trump against Democrat Hillary Clinton, the yield on 10-year treasury bonds passed 2%, a level that had not been reached since January, based on expectations that Trump will significantly boost fiscal spending, fueling the budget deficit. The yield on ten-year treasury securities then rose by 20.3 basis points to 2.07%, the most important daily upward trend since July 5, 2013 to that date, according to Dow Jones. For securities with a 30 year-maturity, the yield rose by 24.7 basis points to 2.877% - the strongest advance since August 11, 2011.

On November 7, 2012, however, the day after the election in which Democrat Barack Obama won against Republican Mitt Romney, the yield on US 10-year treasury securities fell 0.11 percentage points to 1.64 %, and to 2.83%, from 2.92% in the case of those with a 30-year maturity.

Four years earlier, in 2008, when Democrat Barack Obama (winner) and Republican John McCain fought for the White House, the yield on ten-year treasury bonds fell to 3.73% on November 5 (the day after the election), from 3.81% the day before, and in the case of 30-year securities - to 4.13%, from 4.20%.

On November 3, 2004, the day after the election of Republican George W. Bush (winner) and Democrat John Kerry, the yield on ten-year treasury securities fell to 3.74% from 3.75%, and for those with a maturity of 30 years - to 4.83%, from 4.84%.

On November 8, 2000, the day after the election in which Republican George W. Bush (winner) and Democrat Al Gore fought, ten-year-old treasury securities had a stagnant yield of 5.87%. , while that of 30-year securities fell to 5.89% from 5.90%.

According to experts, the evolution of US bond yields during a year with presidential elections is very similar: treasury yields have a seasonal upward trend in early February, then rise further until mid-May, after which they fall until the year end.

It should be noted that the yield on US government securities with a maturity of 30 years reached a maximum of 3.462% on November 4, 2018 and a minimum of 1.031% on March 9, 2020. In the case of ten-year securities, the maximum level was recorded on June 12, 2007: 5.297%, and the bottom - on August 4, 2020, respectively 0.512%.

On the day of the US election this year, November 3rd, some investors said that the largest bond market in the world - the US - could suffer severe corrections once the election result is known. Investors in that market have largely reached a consensus: that US securities will be sold off en masse after the election, as Wall Street focuses on the prospects for a new stimulus package which would support the economy, in the context the Covid-19 pandemic. Thus, discussions about the package of fiscal incentives should be closely monitored, as they will have the greatest influence on the bond market.

Tom di Galoma, general manager of government securities trading at Seaport Global Securities, says: "We expect a higher impact of election results on government bond yields, regardless of who gets into the White House."

Ian Lyngen, head of US interest strategy at BMO Capital Markets, also says a sudden sell-off on the bond market would depend on the clarification brought about by the announcement of a result in the presidential election. In his opinion, if the ballot counting process proves to be smooth and quick, the yield of 10-year Treasuries could quickly rise above 1%.

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15 Ian. 2021
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