Stock market ticker tape with U.S. presidential election banner

Decoding the Markets: How Political Events Like the 2016 US Election Impact Your Investments

Theo Raines in Business & Economy August 2025 • 3 min read.

"A deep dive into how the 2016 U.S. presidential election influenced stock, FX, and VIX markets, and what it means for today's investor."

Political events can have significant ripples in the economy, subsequently impacting the financial markets. From policy changes to shifts in investor sentiment, the performance of stocks, foreign exchange (FX), and volatility indexes (VIX) are often intertwined with the political landscape.

One striking example of this interconnectedness is the 2016 U.S. presidential election. This event wasn't just a turning point in politics; it also served as a powerful catalyst for change in global financial markets (GFMs). This is a important topic, since knowing how big events affect finances helps investors deal with market shifts better.

A recent study sought to understand just how the 2016 election influenced key markets, offering insights that are useful even today. The study shed light on the effects on stocks, FX rates, and implied volatility, acting as a tool for investors and market watchers. Understanding these dynamics empowers you to make strategic decisions and stay ahead of the curve.

The Election's Impact: What Happened to Stocks, Currencies, and Volatility?

Stock market ticker tape with U.S. presidential election banner

The study indicates a significant influence of the U.S. presidential election on both equity and FX markets across the globe. This suggests that markets weren't entirely efficient in the short run, presenting opportunities for those who could understand and react to the changing landscape.

Here's a quick breakdown of the key findings:

Equity Market Reactions: Republican president had adverse effects on the Nifty50, S&PASX200, and IPC equity markets, while FTSE100, DJIA, Top40, EuroStoxx50 and Nikkei225 reported positive returns.
Currency Market Turmoil: International trade proposals led to losses in the global currency market against the U.S. dollar.
Investor Sentiment: The day of the poll announcement saw investors' sentiment measured extremely low, while VXJ and AXVI-based market participants showed a high degree of concern. The election period was bearish; the post-election period saw a bull-run, particularly in Asia-Pacific markets.

These findings highlight the complex interplay of factors influencing market behavior during times of political change. It is also important to remember that policy affects stock price.

Implications for Investors: Navigating the Politically Charged Market

The research provides two important implications for investors. First, market inefficiencies in the short run offer opportunity to profit in the GFMs. Second, FPIs can develop profitable strategies to profit from FX market trading. Although the world of financial markets can be complex, understanding the effects of events such as this empowers both seasoned experts and new investors.

About this Article -

This article was crafted using a human-AI hybrid and collaborative approach. AI assisted our team with initial drafting, research insights, identifying key questions, and image generation. Our human editors guided topic selection, defined the angle, structured the content, ensured factual accuracy and relevance, refined the tone, and conducted thorough editing to deliver helpful, high-quality information.See our About page for more information.

This article is based on research published under:

DOI-LINK: 10.1016/j.najef.2017.08.014, Alternate LINK

Title: The 2016 U.S. Presidential Election And The Stock, Fx And Vix Markets

Subject: Economics and Econometrics

Journal: The North American Journal of Economics and Finance

Publisher: Elsevier BV

Authors: Imlak Shaikh

Published: 2017-11-01

Everything You Need To Know

How did the 2016 U.S. presidential election impact global equity markets, specifically mentioning some of the affected indexes?

The 2016 U.S. presidential election had varying effects on global equity markets. Specifically, the Nifty50, S\&PASX200, and IPC equity markets experienced adverse effects. On the other hand, the FTSE100, DJIA, Top40, EuroStoxx50, and Nikkei225 reported positive returns. This indicates that the election's impact was not uniform and depended on the specific market. This difference relates to global uncertainty created by the election and policy proposals.

What was the general trend in investor sentiment surrounding the announcement of the 2016 U.S. presidential election results, and how did specific volatility indexes react?

Investor sentiment was extremely low on the day of the 2016 U.S. presidential election poll announcement. Concurrently, market participants associated with the VXJ and AXVI volatility indexes showed a high degree of concern. Furthermore, the election period was generally bearish, but the post-election period saw a bull-run, particularly in Asia-Pacific markets. This change in market momentum shows the important and direct affects of investor sentiment.

Besides equity markets, how did the 2016 U.S. presidential election affect the foreign exchange (FX) market, particularly in relation to the U.S. dollar?

The 2016 U.S. presidential election, mainly due to the potential changes in international trade proposals, led to losses in the global currency market against the U.S. dollar. This suggests that uncertainty surrounding trade policies can significantly impact currency valuations. It is important to note that the impact was not uniform across all currencies; it was relative to the U.S. dollar.

What strategies can Foreign Portfolio Investors (FPIs) potentially use to profit from the FX market based on the market inefficiencies related to political events like the 2016 U.S. election?

The study suggests that FPIs can develop profitable strategies to profit from FX market trading by leveraging the inefficiencies created due to events such as the 2016 U.S. presidential election. Since the market is not entirely efficient in the short run, this presents an opportunity to understand and react to the changing landscape and policy announcements. Understanding the direct impacts of policy enables opportunities to be taken.

What are the broader implications for investors, both seasoned and new, in understanding the financial market effects of political events such as the 2016 U.S. presidential election?

Understanding the effects of political events such as the 2016 U.S. presidential election empowers both seasoned experts and new investors to navigate the complexities of financial markets more effectively. The research highlights two key implications: market inefficiencies in the short run offer opportunities to profit, and FPIs can develop profitable FX market trading strategies. Recognizing these dynamics allows investors to make more informed and strategic decisions, particularly during periods of political change and uncertainty. This awareness is crucial for staying ahead in a politically charged market.