What history tells us about US election and Sensex movement

NEW DELHI: Dalal Street hardly follows cues from Wall Street, not just during the run-up phase but even a month after election in the world’s largest economy. Both Sensex and S&P500 have historically chosen their own paths during the two-month period.

In the run-up to the 2016 election, where Republican nominee Donald Trump and Democrat Hilary Clinton came face-to-face, S&P500 fell 1.11 per cent in one month to November 8, only to make a 5 per cent rebound in the month that followed. In contrast, while the BSE Sensex fell 1.75 per cent in the month to 2016 election, it declined another 3.25 per cent afterwards.

In the 2012 election, S&P500 fell 1.89 per cent in one month to election and another 1.01 per cent in the month that followed, even as Democrat nominee Barack Obama got re-elected after defeating Republican Mitt Romney.

India's case was polar opposite. Sensex gained 0.58 per cent in the run-up to the US election on November 6, 2012, and another 3.56 per cent in the month that followed.

The 2008 election was conducted amid meltdown in the US financial market. S&P500 declined 4.84 per cent in the month to November 4 elections, and took a massive dip of 15.96 per cent in the following month. In comparison, Sensex's plunge was steeper at 9.92 per cent before the election but milder at 13.18 per cent in the one month post election. That time the fight for the world's strongest post was between Obama and Republican John McCain, where the former prevailed.

In the 2004 election, both the S&P500 and Sensex edged lower in the run-up to the D-Day on Nov 2, but Sensex surged 9.97 per cent in the month that followed, against S&P’s 5.29 per cent rise.

Also in 2000, while Sensex fell 2.5 per cent before election and rose 4.3 per cent in post-election period, S&P500 rose 2.13 per cent pre-election and fell 6.17 per cent afterwards, data compiled by ETMarkets.com suggests.

This time, the US election is scheduled for November 3.

Ashwini Agarwal of Ashmore Investment expects the US market to remain volatile this time because investors are afraid that the process of the larger section of votes via mails may create complications in determining the outcome for longer than what has usually been the case.

“You would usually expect that you would get an outcome on November 3 evening. But time around, it looks extremely unlikely that you will have a definitive answer that day. It will be stretched out by a couple of weeks, maybe even months. The worst case would be that the battle ends up in courts. Whoever is the losing candidate may decide to challenge the verdict on several accounts,” Agarwal said.

UBS said the US election has not generally impacted Asian equities significantly, but occasionally there has been large effects such as the 2016 incident when a sharp rise in US bond yields had impacted ASEAN, especially Indonesian equities, very hard.

Trackers maintained by FiveThirtyEight and New York Times shows that Biden has an edge over Trump. However, polls have a history of being wrong.

“For me, it is going to be a sideways market from here until the US election. I do not see any directional trend in the market for next three weeks at least,” Manish Singh of Crossbridge Capital LLP told ET NOW.

Independent market expert Ajay Bagga says if there is a dispute or no clear winner and the matter languishes for a month, there will be even more volatility. “That is what options and the VIX on US markets have been trying to price in,” he said, adding that a similar situation had arisen in 2000 between George Bush and Al Gore, and the US Supreme Court had to intervene finally.