U.S. Election Cycles

Overview

The first half of this analysis was written several months ago and serves as a structured recap of historical asset class behavior during U.S. election cycles.

As expected, Donald Trump’s re-election has heightened inflation expectations across the market, driven by concerns over:

• Potential tariff increases,

• A likely widening fiscal deficit, and

• Stricter immigration policies that could affect labor supply.

While these concerns may be overstated in the long term, short-term market behavior is often dictated not by truth, but by collective perception — even if that perception is flawed.

Thus, the prudent stance now is cautious observation and right-side entry, waiting for confirmation rather than attempting to bottom-pick prematurely.

Major Asset Performance

Overall, the movements of U.S. equities (SPX), The U.S. dollar (DX), and Gold (GC) have aligned broadly with expectations following the election. Each asset has reflected the typical post-election narrative — risk sentiment improving for equities, inflation hedging for gold, and policy-driven volatility in the dollar. Sector wise,

• Small-cap equities (IWM) and financials (XLF) have shown early leadership, benefiting from optimism around deregulation and domestic stimulus themes.

• The earlier analysis misjudged the energy sector focus — the spotlight should have been on oil services and infrastructure plays, rather than broad energy ETFs like XLE, which often dilute exposure.

  
  

Though not my primary research area, this observation helps refine sector-level frameworks for future macro cycles.

Historical Data and Patterns

A more detailed statistical study of asset and sector behavior across past U.S. elections is included in the following charts (omitted here for brevity).These datasets highlight recurring election-year dynamics:

Big picture

All Years vs Election Years - more volatilities, fears and rallies

After election day - negative first and then positive in long-term

More comprehensive statistics from JPMorgan

Key Takeaways:

1. Market psychology dominates short-term movements — perception often precedes fundamentals.

   
   

2. Election-related volatility tends to compress after policy clarity emerges.

   
   

3. Right-side entries (confirmation-based positioning) remain superior to preemptive calls during macro transitions.