How to trade an election

Investors differ in their approach to elections. Some see politics as an edge to exploit; others as noise to block out. Even for those without a financial interest, markets offer a brutally frank perspective on the economic stakes. As elections approach in America and Britain, as well as plenty of other countries, that is especially valuable.

Take what happened before and after America’s presidential election in 2020. Green-energy and cannabis stocks briefly became market darlings as the odds of a victory for Joe Biden rose, since investors expected his administration to enact policies favourable to both. Exchange-traded funds covering the sectors rallied by over 100% from two months before the election to Mr Biden’s inauguration, before later dropping as investors scaled back their optimism.