Trading plan for election day

What to fade and what moves to go with

Election day is upon us, and it is arguably the most impactful event for global macro traders this year. The volatility and trends that arise from the US presidential election will make or break the year for some traders. Polls and prediction markets are showing a small lead for Trump going into the election, but only by a slim margin - essentially making any bet on the outcome a coin toss.

Every sell-side analyst has their own scenario analysis of what trades will perform or underperform if Trump or Harris wins. I will provide my own version of this, but I take it a step further by identifying the trades that are likely to mean revert and the trades that I believe will result in durable trends. Betting on who wins the election might be a coin toss, but your pnl doesn’t have to be. Understanding these setups provides a roadmap of what trades to avoid, or even fade, and what trades to establish once the election outcome reveals itself. I’ve ranked the trades in order of attractiveness, but keep in mind that these views are very subjective and may differ from how other traders plan to trade the market.

Harris wins

#1 Buy the dip in the S&P 500 - Most analysts predict a Harris win will result in a selloff in the stock market, as a Harris presidency is perceived as being unfriendly to corporate earnings due to her proposals around raising corporate tax rates.

Source: Piper Sandler

However, the MAG 7 have already insulated themselves from rising corporate taxes via their offshore tax havens, making the S&P 500 less sensitive to Harris’ tax policies. Harris is also perceived as being friendly to big tech. Once the election passes, VIX and the MOVE index will likely compress lower, and the removal of uncertainty should provide a tailwind for equities going forward.

November and December are also very strong seasonal periods for equities.

Source: Goldman from last week

Goldman’s Scott Rubner estimates significant buyback demand in November and into December.

November is historically the largest execution month of the year, that we've seen from our desk, with 10.40% of annual spend. GS Corporate execution desk estimates $960B worth of executed buybacks in 2024 or +$100B worth of share repurchases in November. 

I estimate ~$6B worth of daily vwap demand in the 19 trading days of November: this may also have more potential demand impact during lower liquidity days during the holidays. 

#2 Short USD/JPY FX - The rally from 140 to 153 has been partly driven by strong US data, but also by Trump’s rising election odds. Trump has proposed a global tariff hike, which would severely impact Japan, one of America’s largest trading partners. A Harris victory would erase the spectre of tariffs, and also result in less inflationary fiscal and trade policy, allowing the Fed to continue its cutting cycle for longer and perpetuating the disinflationary regime that was supporting asset prices.

Other factors supporting the yen are that Japanese government officials are once again warning against “one-sided currency moves” in an effort to slow yen depreciation. Ueda, in the BoJ’s most recent meeting, surprised to the hawkish side. A Harris victory could very well take USD/JPY back down to the 142-145 area.

#3 Buy the crash in BTC - A Harris victory would remove the possibility of BTC being purchased by the Treasury as a national reserve asset, and would likely slow down the regulatory relief that would come from replacing Gary Gensler with a crypto-friendly SEC chairman. As a result, the “Trump premium” in BTC would unwind and trigger liquidations on the downside if Harris were to win.

However, BTC tends to outperform in disinflationary regimes, which is what we will have under a Harris presidency. I expect any weakness in BTC to be short-lived. I would be a buyer at 60-62k if we see it.

#4 Sell the rally in gold - I explained in my previous post why gold is overextended and is vulnerable to a correction. Gold has decoupled from yields and USD FX thanks to the narrative that a Trump presidency will bring about wider budget deficits and the typical doomer prophecies of a collapse in faith the US dollar and debt. Harris would be the lesser of fiscal evils, and therefore a lot of the “Trump premium” in gold would unwind. For positioning to revert from excessively long to normal levels, gold would need to correct from today’s price of 2740 back to around 2500.

Trump wins