USD flows: Ruling reminds of midterm election risk after the summer
Judge ruling a small reminder of disruption risks into midterms
Historic tendency for drawdowns may be a blunt tool given unique current dynamics
But it still reminds that this could be a disruption for equities, and the dollar one way or another
US elections will be an important topic as the year progresses, even if it is tending to stay off the radar for now while we remain in summer and with critical Iran issues dominating attention.
A brief reminder on that side note though: a Washington District Judge has just declined to block Trump’s executive order on mail-in voting and associated actions on state citizenship lists and vote records. Democrats argued it would infringe individual rights and could disenfranchise voters. The potential for a mess later in the year around mid-term interference and contested results seems incredibly high. The big question is whether the market continues to shrug at ‘politics’. Or, if it doesn’t, how the net effects on risk markets and dollar-trust-status net out.
Certainly, in generic terms, midterm years do “on average” tend to see risk markets flag as we move out the summer into the autumn build up, though it is fair to say the current US equity market has been anything but ‘normal’ as it is so heavily driven by AI-centric trades and sustained speculative dynamics.
‘Averages’ and seasonals of any kind can conceal a lot of statistical dubiousness over relatively small year samples, as well as blur narratives (given the tendency for this period of the year to be a timing for volatility anyway regardless of politics).
Still, the historic tendency to see notable peak-to-trough drawdowns at some point during midterm years and a tendency for both larger drawdowns and lower returns versus the rest of the presidential cycle is well-documented and a useful contextual 'prop' at least to the particular dangers on show this time around. In that sense, unique AI late cycle and abnormal cyclical policy domination notwithstanding, over-complacency to this scenario is something to keep in mind.