Your Guide To Trading The US Election

Hi there, it's Anthony from Amplified Trading. Hope you're doing well and enjoying your weekend. Just a quick, concise overview of what to look out for in the upcoming US election. A lot of uncertainty, of course, and also it's likely to be a particularly difficult event to trade if you're not familiar with the process of which the information on the night will be coming out. That's kind of extrapolated by the fact that as well, it's likely to be an inconclusive result on the day and take days, if not weeks, before a final result is known. So how will that impact the market? What are the main things to look out for? And how might the market react? Are all the things I'm going to cover in this upcoming session. But if you want to join us live throughout the entire night, myself and the team will be doing so on Amplify Live. There's more information in the link in the description of this video. Enjoy. Okay, thank you very much for joining me for this short session where I'm going to give you an overview of what to look out for for the US election, a bit of context as well, because I am conscious of the fact that not everyone might be familiar, particularly based in the UK and mainland Europe, of how US elections work. Now, this isn't intended to be every line-by-line granular detail of trading this event event, because ultimately that would take me a lot longer to explain. And we're going to be doing that for all of our traders in our community on Amplify Live on the actual night. But let me give you a, a summary of sorts. So here he is, the main man, Donald Trump. Can he secure a second term after his surprise victory in 2016? So what are we looking at? First things first, I think there's a couple of basic points to understand when it comes to a US election. And that is firstly the Electoral College. What is that? Because I know if you're in America you'll probably be very familiar with what that is, but a lot of people in the UK might not be. So we'll start from the bottom and work our way up. When Americans cast their ballots for the US president, they're actually voting for a representative of that candidate's party known as an elector, and there are in total 538 of these electors who then vote for the president on behalf of their state. Now, each state is assigned a certain number of these electoral votes based on the number of congressional districts they have, plus 2 additional votes representing the state's Senate seats. A majority of 270 of these votes is needed to win the presidency, and again, this will become very clear later on when we look at a few more graphics, because if you remember, in 2016, Hillary Clinton did in fact win the popular vote but she lost, importantly, the Electoral College, which meant that she lost to Donald Trump in terms of becoming the US president. The Electoral College nearly always operates with a winner-takes-all system, and this is quite familiar actually to, in UK politics, the first-past-the-post type analogy, and that being that the candidate with the highest number of votes in a state claims all of that state's electoral votes. So even if, let's say, Trump wins by a whisker, 0.2% in a particular area, that's a phenomenal amount of people who are actually voting for Biden. It's just it got pipped at the post by a fractional amount, but that doesn't matter in terms of its reflection in the Electoral College vote. In fact, all of that area would go to, would go to the person who won. So in that case, it would all go to Trump. So if it was somewhere big like Florida, which accounts for, say, 29 Electoral College votes, one of the largest of the key swing states, then even if, like in 2016, Trump beat Clinton by just a margin of 2.2%, in fact he claims all of the 29 votes that would come with winning the crucial state of Florida. The Electoral College size isn't everything, and there's a couple of things I wanted to explain here just to make it crystal clear. While the number of electoral votes a state is assigned reflects largely its population— so you imagine places like Texas, California, Florida generally reflected in larger Electoral College vote amounts compared to some of the smaller areas like Nebraska, for example— the minimum of 3 votes per state, as per the rules that we outlined on the first slide, means that the relative value of electoral votes varies across America. And what that means then is that the least populous states like North and South Dakota and smaller states like New England are overrepresented. If you think about it, they have to have as a minimum requirement 3 votes even though their population is particularly small. On the flip side though, take the states with the most people, so California, Texas, Florida, they are actually underrepresented in the Electoral College. And this is very important because it's those areas, particularly the likes of California for example, which is the largest which does vote, of course, for the Democrats. Now, what does this mean then? Well, it means then that being popular isn't enough, as I briefly mentioned with Hillary Clinton. And 2 of the last 5 elections were won without gaining the most votes, that being the last one and also Bush back in 2000. That was the one that was a really legally contested result which actually required the courts, and why people like Barrett, the Supreme Court nominee now in that position, could be potentially really pivotal in the weeks to come if it really comes down to legal contention over certain areas in their votes. Again, key metrics here though: Democrats tend to win greater margins in Electoral College but have never won without the popular vote. Unlike the Republicans in the case of Bush and Trump, as what we've seen in the last two decades. The Electoral College, the importance of swing states. You know, you hear a lot of people talk about battlegrounds or swing states. This is really where the election will be decided. And a couple of things here. In 2016, Clinton's substantial margins in California and New York, as you would imagine, which are strong blue democratic areas failed to earn her enough electoral votes. And the reason for that is because in areas like Pennsylvania and Michigan, Trump pretty much won all of those key areas. Uh, Trump won Florida, Iowa, Michigan, Ohio, Pennsylvania, and Wisconsin, and that group alone accounted for around 99 electoral votes to add to his overall total. Uh, the majority of Trump's electoral votes actually came from races with margins of 10% or less. So they're actually pretty close. It's just that again, he pipped Clinton to the post, if you like, and swept those areas to accumulate all of those votes. In 2016, Trump won Florida, Wisconsin, Pennsylvania, Michigan by less than 1.3%. So it was very small, fine margins here, but he took all 75 of the electoral votes Well, Clinton effectively got none. So although she won these bigger areas like California, failing to pick up some of the swing states was really damaging for her overall Electoral College performance and consequently losing to Donald Trump in 2016. So they're going to be really key. Now, of those, a couple of things to be aware of, which is the demographics of these areas. And this is where you could argue that Trump has a slight edge. And the rationale behind that is that the key battlegrounds where Trump was elected in 2016 have a higher percentage of white population than the average US state. And out of these, white non-college educated are more overrepresented than college educated voters, which tend to be then more leaning towards voting in a Republican manner. So ethnicity and also the education level played to the hands of being more in favor white non-college into potentially voting for Trump in these key areas. The other things are that lower than average non-white populations also favor the Republicans. Most of Florida's Cuban-American community also voted for Trump if we were using 2016 as a reference point. And then finally, swing, swing states, these areas like Iowa, Wisconsin, Pennsylvania. Typically they have elder populations comparative to looking at some of the other states, particularly on the coastal areas, and therefore older voters have reliably voted for Republicans in recent elections. And again, this plays into that whole civil situation, uh, the mantra of law and order with a lot of the Black Lives Matter movement that has obviously been a key focal point of 2020 just a few months ago. And has that galvanized that older vote to vote in that traditional way that has been adopted as a strategy by previous presidents in the past. Let's have a look at the polls then. And what, what are they saying? People are always a little bit apprehensive to put too much faith in these, but they are a decent reference point, I guess, for to benchmark your expectations against. And on a national level, Trump has made some headway in recent weeks. And I'd say this is quite typical going into a major political event. The polling does on average tend to narrow because uncertainty, anxiety starts to build, and that draws the two candidates towards each other more often than not. And on a national level, Biden's ahead by 7.4, as you can see in the blue line over the red. In terms of the top battlegrounds though, it's a slightly different story. So looking at Wisconsin, Michigan, Pennsylvania, North Carolina, Florida, and Arizona These are defined then by most market pundits as the key 6. This is very different compared to the national level where Biden leads by a fairly comfortable 7.4. On the battleground level, the key ones, he only leads by 3.2, and that has been narrowing at a faster pace over the last 2 weeks. Biden really hasn't made any headway at all. It's Trump coming off the bottom that has really narrowed that performance. Looking at the bookies, because this is often a good way to see where the markets head or at in terms of market positioning and pricing, the bookies are still actually pretty heavy in favor of Biden. Uh, when I took this on Friday, this slide, 63.5, uh, against Trump at 35.7. A couple of things also to be aware of: the early voter turnout. A few things if you're not fully aware. Basically, because of COVID-19, the world is a different place, and that is going to be reflected in the way this election is going to work. More than 80 million Americans have cast their ballots in the US presidential race already. That tally was taken on Thursday according to the Elections Project run by the University of Florida. That's one of the highest participation rates then we're likely to see in this election in over 100 years, pretty much. The reason for that, of course, is that most people do not want to be put in a situation where they're going to be potentially in harm's way of transmitting the disease and catching COVID-19. Hence the reason they'll want to post their vote ahead of time. Now, Democrats hold a significant advantage in early voting due to their embrace of mail balloting, while Republicans have historically cast in large numbers but have shunned amid repeated and unfounded attacks by Trump. Remember, Trump has been pretty vocal in many months saying how the system's rigged and there's mail voter fraud. The reason why this is coming about is kind of twofold. One, this is something very similar to that contested election back in 2000 with Bush, but also as well, he's trying to frame a situation in order to put mistrust in people's ability to then use the mail-in system, only to really galvanize them to vote on the day, but also to use then as a backstop, as leverage, should it be a tightly contested, fought race. Then when it comes to the courts and ultimately the Supreme Court, potentially, where there is now a conservative-leaning composition on that court, which plays in his favor, of course, following the nomination and acceptance of Barratt now into that position. So here then is quite an interesting thing. I mean, most people kind of reading between the lines would probably think it's similar to Brexit in a way where the Republican Trump supporters are quite motivated comparative to, say, like the Brexit Remainers were not complacent, but I guess less motivated from a practical sense as well. If Democratic voters were reluctant to get out there into the postal ballot physically because of, again, being more educated, more aware of the risks surrounding COVID-19, that might not be the case so much so for Republican supporters, given the fact that we've seen mass physical rallies in America. A lot of the kind of anti-face mask and this type of thing tends to lean more Republican. Which does bring about a very interesting concept to look out for when the results start coming out, which is the way they might lean one way or another, which we're going to get to now. Now, as you can see on the right-hand side, there's kind of a map, little hexagons defining all the different US states. And the reason why I'm showing you this is because it gets a little bit messy now as for trading the actual night. And the reason for that is because 6 states do not offer at all any pre-election day in-person voting. Connecticut, Kentucky, Mississippi, Missouri, New Hampshire, South Carolina. There is early voting in some of the other areas like Illinois, for example, New York, as in-person absentee. There's all mail, EV options, and so on and so forth. Basically, long story short, there's lots of different ways to vote that are specific on a state level, which means the results that we're going to be anticipating are going to be quite difficult to track because timing might not be uniform. Now this is a good graphic to, to reflect that. This is looking at swing states because again they're the key ones to focus on, and swing states could be called for Biden or Trump on election night. So what we're looking at here is the the top half, the green, they could, could be called, and then there could be delayed areas. And as you'll notice, the delayed ones include some really pivotal states: Pennsylvania, Ohio, Michigan, Wisconsin, and Iowa. And the reason for that is, is that for the, the top ones, pre-processing period, some states prepare mail ballots for tabulation in advance, giving them a head start going into Election Day, meaning that then they can get tangible end result very quickly. On the contrary, though, some of these areas do not follow that system, and I'm going to give you a list and a breakdown of these, because what might happen then is if you're going to be able to tabulate, let's say, or calculate the in-person physical votes quicker, as well as having the ability to have done that ahead of time, could that convey then itself into Trump showing an early lead only then for then the ballot numbers to come in. Slightly better performance by the Democrats for Biden, as per historical sake. And then we start to see a delayed around these key pivotal and large Electoral College seats like Pennsylvania, Ohio. That's almost 40 seats there alone, um, to look out for. Whether a winner is declared on election night could well then depend on Arizona, Georgia, North Carolina, and Florida is obviously a really super important one. Again, the key number here, the line in the sand, is 270. If Biden wins all 4 states, then Biden has a good chance of winning the presidency. The race could be called for him on the night. If Trump wins all 4 states, the race will probably come down to swing states in the Midwest, where results in themselves could take a couple of days or even weeks. And I'd say the longer this takes, if it's— the less conclusive it is, the more negative that might play out on market prices across asset class. The biggest one, of course, is Florida here, arguably America's most politically divided state. This week alone, the average polls according to RealClearPolitics have swung quite wildly. Midweek they went in Trump's favor, they've now swung swung back to Biden, albeit very marginal, only around 1.2 points. So I wouldn't read too much into that. That's pretty much a tie in my mind. The state is one of the most racially, ethnically diverse states, with large numbers of Black and Latino voters and a large share of retirees as well. So I think it's a good reflection from a demographic point of view, of which, although other states in the US might not be so diverse, they are one of those catchment areas and would reflect that. So looking at Florida might be quite a good kind of litmus test for how the rest of America might perform. So results there could signal how demographic groups are likely to vote across the country. Something I'll definitely be looking for as cues on the night. Don't jump to conclusions too early. Trump supporters are much more likely to say say that they'll vote in person rather than mail. And a couple of things to be aware of here is that data experts warn that it could be foolhardy to draw sweeping conclusions from initial results in any given state, especially where the margins are close. They say that initial returns in states that prioritize the counting of in-person votes may show Trump ahead, only for a latter tally of mail-in ballots to reveal a Biden win. that for me is very telling for how the night might play out. You know, Biden or a Trump victory I think would be quite positive initially and a knee-jerk for things like US equities. And then as then more information comes out and latter tallies of mail-in ballots starts to show more for Biden, you might see a little bit of that pullback on the initial moves that happen. So it could be very seesaw overnight. It's also worth keeping a very close eye on the exit polls done for broadcast networks in a handful of counties in swing states that could indicate wider trends among key demographic groups. The embargo on exit polls is lifted at 5 PM Eastern time, although news organizations have pledged not to report any exit poll results for individual areas until polling has closed in that region in order to avoid characterizing the outcome of the race before the polls have closed. And as always in political events, the exit polls are always very telling and typically quite accurate. It's not just about who wins the presidency. This was one of the surprises, I think, of 2016— wasn't just Trump winning, but it was a complete red wave. So both the House and Senate went the way of the Republicans. What have we got here then? Well, currently, of course, it's a split Congress. Republicans control the Senate and Democrats the House. What are we looking at this time around? Well, for the Senate, has 53 Republicans and 43— or 47, excuse me— Democrats, including 2 independents. There are 35 seats up in 2020, including special elections in Arizona and Georgia, of which 23 are held by the GOP. Democrats need to gain 3 or 4 seats in order to take control. And as per this graphic here, you can see the kind of breakdown, if you like, of the toss-up seats, the leaning Dem, GOP, and the more likely characters as well. So this would be a good shortlist, and we'll have issuing to all of our traders a crib sheet so they have that to hand on the night. The House, similar setup. So these, these crib sheets really are quite key to kind of tick off and tally as you go through the night and the results come come in. All 435 congressional districts will take place in terms of the, the House race. The Democratic Party controls the House, where 218 seats are needed for control. And this is what we're looking at at the moment as far as some of the initial polling is concerned. Around 214 said to be for the Democrats, slightly lower than where they are at the moment, but there's around 39 that are deemed toss-up areas. And so again, they're going to be key ones to look out for. I can't express how important it is for the post-election night, then overall outcome for asset classes directionally over the medium to long term, dependent on the composition and how much power these political parties have given the structure between the president and the two chambers. Uh, the total of safe Democrats, likely Democrat, and lean Democrat seats is currently around 228, and these latest numbers I've pulled around 214, so it has fluctuated. It implies the Dems could retain the House even without some of the toss-up seats. So the Democrats do have quite a steep advantage here in the House. Okay, crib sheet, what to look out for. Timing is first, uh, the countdown before the election day. This is counting mail-in ballots is gonna include Florida, Ohio, Michigan, North Carolina, Iowa, Maine, and New Hampshire. These will all be, of course, pivotal, as I've just discussed, particularly the first one, Florida. Countdown upon receipt, Georgia, Arizona, Nevada, Nebraska. Countdown on election day, and a really big one, is Pennsylvania. Some have said whoever wins Pennsylvania, that will be the deciding one, given historical precedence. First polls of interest to close. So some of the first results that we can expect to see of areas of more interest, uh, looking at London time, around midnight for Georgia, North Carolina around half 12, Arizona around 2 AM. So it's going to be a real all-nighter. Key points to look out for: states with more emphasis on mail-in votes likely to lean Biden, physical votes on the day towards Trump. For me, it's going to be a particularly awkward and untraditional way to monitor a US election. I started my career in 20— or excuse me, in 2006, so I wasn't around for the 2000 Bush debacle that happened in the US election. But my expectation is if you're a new trader, this is going to be almost impossible to trade, I think, without some kind of clear guidance as to what you're doing on the night in order to aggregate and understand what exactly is the inbound information means for price. Price action is like to be very volatile. You're going to get lots of head fakes, misdirection. And so really it's more equipped for a personality of someone who not only has a good grasp of the actual concept at hand, which being the US election, what everything means, but also someone with a more higher risk tolerance who, from a psychological perspective at least, is able to commit, be a bit more assertive and aggressive, because you're gonna have to be quite proactive in managing trades in the overnight session. I would have no problem at all if you were a brand new trader to kind of sit on the sidelines, do watch and observe, because that's the only way you're going to improve and learn for the future. But unless something really clean-cut or spectacular happens and there's a really clean outright move in the market, which I think is going to be unlikely to be the case, then there's a strong chance you might get caught out quite quickly and repeatedly. Because psychologically, if you're not— have developed that skill yet, frustration can start to bed in, and that can, that can manifest itself quite negatively very quickly. So, you know, definitely a good learning lesson. But, you know, perhaps if you're at that stage in your trading career, keep the size small, be realistic with it, and be fairly proactive with your trades. Otherwise, for a lot of our guys, it's kind of a key event for us. We're a macro news-driven trading firm, multi-asset, so can't wait to get stuck in, to be honest. And hopefully I can help the guys navigate the night. And the other thing is then, don't forget the composition of Congress. Definitely key. It's not all about who becomes president. And so, you know, do we get a blue wave, a red wave? What does that mean for markets? And what does that mean for markets? Here's a, here's a kind of a scenario market reaction summary, not so much for the night, but in the post-world that it might look like, dependent on a Trump orderly win, gridlock, or a blue wave. The one thing I think that's quite important is what asset class do you want to trade? I think it's a little bit more messy for currencies. I think it's a little bit more clean for equities. I think given the overall situation with the pandemic, I find it hard to see much in the way to really knock these equities lower other than a real extreme and consistent acceleration in COVID cases in America that requires a national-led shutdown. But certainly under Trump, that's very unlikely to happen. And even with Joe Biden, even though he might have said that before many months ago, again, I think that the way of which the virus is being handled at the moment is likely to be enough to continue to keep the economy somewhat open. That means then stimulus is forthcoming. It's kind of just hit a bit of an impasse because of the impending event in itself. No one really wants to cut a deal to give the other side side of victory, but that stimulus is coming. And so whether you get a blue wave or a Trump orderly win or even gridlock, that could also, according to JP Morgan, be a positive catalyst for equities, allowing vol to subside and driving a mechanical re-leveraging with equities, given perhaps some of the capital taken off the table with the uncertainties that laid ahead with the actual event in itself. The most bullish scenario according to JP Morgan is a Trump coming out orderly win, most favorable for equities. The bank has a probability-weighted end-2020 SPX target of 3,600 in that scenario, but sees potential upside of 3,900 in the event of an orderly Trump win. Remember, we're trading around 3,250 at the moment in the S&P. S&P. For currency markets, the general interpretation is seeing a red Republican wave more dollar positive, a blue wave Biden sweep then more negative, just given the fact that more sizable fiscal stimulus widens the current account deficit. And so that is it. Don't forget, Amplify Live is our new trader hub. I'm going to be covering the full US election, so I'll be going all night You know, this is what I do. My job here is to support all of the traders at Amplify Trading within our live community, which is housed on Amplify Live. So hopefully that provides them with an edge in a news-driven event that's coming up. But not only that, hopefully it's a really great learning exercise for people to really see how I kind of break down all the news sphere into something a little bit more actionable and and how it can help. There's a 7-day free trial for this, so really there's not much to lose there. And I'd absolutely love it if everyone could join. We'll have a live feed streaming with me and all the other members of the team all night long. And there's other cool stuff on there as well that you might enjoy. So that's it. Yep, just an overview. There's much more I'm going to go into on the night, but hopefully that was useful. Get some rest, gonna need it. And yeah, I'm pumped, I can't wait. So look forward to seeing you online. Thanks very much.