Four history lessons from US elections from Deutsche Bank

Deutsche Bank is out with a piece examining historical lessons for markets ahead of the November 5 US election.

The first takeaway is that markets may not react as dramatically to a Trump victory as they did in 2016, since it wouldn’t be the same kind of surprise – betting markets currently give him a 61% chance of winning compared to 28% in 2016.

The second takeaway is that contested election scenarios have historically been rough on stocks, pointing to the 2000 election when the S&P 500 fell 8% in November amid the Florida recount drama and the 1876 election.

On the Congressional front, the third point notes that every president since Clinton has started with their party controlling both chambers – crucial for implementing fiscal policy. Current prediction markets suggest about a 60% chance of either party achieving a “sweep” of the presidency and both chambers.

Finally, DB warns that polling errors tend to be correlated across states and Congressional races, meaning if polls are wrong in one battleground state, they’re likely wrong in the same direction elsewhere.

All that said, I’m starting to think that the trade on election day is to sell shares of DJT, most likely on a ‘sell the fact’ move or on the possibility of some kind of Democratic surprise. I imagine that most of the money that’s flowing into it over the past month is coming on the basis of a Trump win, but if/when that happens, who is left to buy shares of a tiny, money-losing social network?

This article was written by Adam Button at www.forexlive.com.