How Politics Is Affecting The Stock Market Going Into 2017

How Politics Is Affecting The Stock Market Going Into 2017
12 Jan 2017

Stock Market Future in 2017

The stock market is particularly sensitive to changes in the political climate, and 2016 has been a particularly volatile year. With the upheavals of the EU referendum in Britain, and the shock result of the US election in November (not to mention elections brewing across Europe in countries such as France and Germany), investors have been anxiously watching the stock markets. As the new year gets underway, here is a handy guide to how politics is currently affecting the stock market future.

The Trump presidency

Analysts at Forbes.com have countered popular claims that the first 100 days of Trump’s presidency will cause global markets to drop by a whopping 10%. One key marker of this will be, researchers have suggested, a significant fall in the Dow Jones. On the contrary, Forbes’ opinion piece suggests, it could be argued that Trump’s desire to stimulate trade by dropping corporate tax will make US based assets more valuable. Trump’s status as a ‘pro-business’ president has already seen S&P futures rising notably. In addition, there are several factors at play here that are quite simply currently unaffected by political changes in the US, such as the fact that interest rates are at historically low levels.

The Middle East

Oil prices are seen to be a key marker of the prices of assets in general, and with good reason. When the price of oil rises, the prices of other assets rise too. As the Middle East remains a key supplier of oil worldwide, any unrest in the Middle East will cause oil prices to rise. This increases inflationary pressure in the stock markets as a whole. As 2017 begins, there sadly remains a high degree of civil unrest in the Middle East, though some commentators hope that peace treaties involving Russia and Syria will help to bring lasting stability. As such, the situation in the Middle East will be one of the main political factors that affects the stock market going in to 2017. Complex and often unpredictable, it has the ability to cause significant and relatively sudden changes in the markets.

Treasury and Banks Setting Interest Rates

Looking at the economic policies of powerful governments around the world, including China, Japan and the US, will help to see how politics affects the stock market. Levels of corporate taxation can, as described above, drastically change the value of assets. However, the interest rates set by banks (such as the Bank of England) and by the US Treasury will also determine levels of inflation across the markets.

Political Reactions

One thing that can really affect the markets is not so much concrete facts about politics but rather traders’ reactions to them. For example, traders’ widespread perception of Trump as a president who is pro-business has increased their confidence in the US markets. This is likely to be the case for at least a few months whether or not Trump actually implements any pro-business policies or not. By contrast, if the media generates a sense that the crisis in the Middle East will dramatically worsen as 2017 wears on, this will noticeably decrease traders’ confidence in the stability of oil and oil based assets. And, as a result, as we have seen, this will also affect other assets – as the markets tend to use oil as their touchstone.

The Contradictions of Political Reasoning in the Market

Even a cursory glance at financial analysis articles will demonstrate that there are widely differing opinions about the ways and the extent to which politics will affect the stock markets in this new year. Many analysis argue that politics have a negligible effect on the market, whilst others proclaim that by closely monitoring how political events will unfold and by thus predicting how they will turn out we can gain a relatively accurate prediction of market forces. Either way, it definitely helps to have a safeguarding system to help you to make good decisions in the current political climate. Using automated trading software like that provided by CMC markets will help you to make sense of even complex trading decisions.

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Waqar Tariq

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