The Pre-Election Decline in Stocks Is Over, But Will It Last?

The stock market is one of the first to react when the risk sentiment turns negative in financial markets. We saw that when the coronavirus pandemic broke out in Europe in late February, which sent stock markets tumbling lower. The S&P500 index fell from 3,400 points to 2,00 points in just a few weeks back then. But then it reversed higher and made a comeback until the beginning of September, even making new record highs.

In September we saw a decent pullback, as the USD gained strength, but the 100 SMA (green) held as support on the daily chart, and in the last week of that month we saw a bounce off that moving average. The S&P moved higher until the middle of October, breaking above the 50 daily SMA (yellow) after hesitating there for several days.

But, the S&P didn’t make new highs, which was a sign that the pressure could shift soon, and as the US elections approached, that’s exactly what it did. The risk turned negative again, due to the uncertain expectations in these strange times. The S&P500 reversed back down and broke the 50 and 100 SMAs without much hesitation, taking the price to the previous low at around 3,200.

But the support and resistance area surrounding that level held once again, and this week we saw a reversal higher. The elections are drawing to a close now, and some of the uncertainty has been erased. The S&P has claimed back all the losses from the pre-election decline, and Friday’s failure by the sellers to hold, followed by the upward pullback, shows that the pressure is firmly to the upside.

But, according to Donal Trump, the legal battle is not over yet. He has announced that he will take the case to the Supreme Court, and the ballots in Pennsylvania are also to be recounted. So there’s still some uncertainty left out there, and the sentiment might deteriorate again pretty quickly, if the legal fight gets tough. But, whoever wins, the stock markets will be the ultimate winner, since the stimulus package will come before 2021, and as the data shows, the economy is already doing really well in the US.

ABOUT THE AUTHOR See More

Skerdian Meta

Lead Analyst

Skerdian Meta Lead Analyst. Skerdian is a professional Forex trader and a market analyst. He has been actively engaged in market analysis for the past 11 years. Before becoming our head analyst, Skerdian served as a trader and market analyst in Saxo Bank's local branch, Aksioner. Skerdian specialized in experimenting with developing models and hands-on trading. Skerdian has a masters degree in finance and investment.

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