As the presidential elections are around the corner, investors are on alert.  They are speculating about how might the election outcome impact financial markets. Such forecasts determine market sentiment and the dynamics of financial instruments.

Interestingly, analysts at Morgan Stanley believe that economic cycles will have a greater impact on financial markets than the US elections. Analysts have observed that the effect of elections on global stock markets is not particularly significant.

Analysis of previous elections has not revealed a consistent pattern in financial markets, even considering various scenarios and economic conditions, the financial institution noted. The unpredictability related to elections puts market participants on edge, making it difficult for them to manage their short-term investments.

Morgan Stanley emphasizes that certain sectors, such as energy and telecommunications, could face negative consequences from the US presidential elections. They may encounter significant challenges if the Democratic Party's proposal to increase tax credits is implemented. On the other hand, the clean energy sector would benefit if federal funding continues under the Inflation Reduction Act.

However, a potential Republican Party victory is unlikely to boost market optimism. Under this scenario, yields on short-term Treasuries would decline. The US economy will have to deal with severe trade obstacles, the bank warns.

Morgan Stanley analysts believe that the US dollar, traditionally considered a stable safe-haven asset, could suffer in such a scenario. The US dollar could be strongly overvalued if former president Donald Trump is re-elected, the experts add.

Morgan Stanley explains this could occur due to the introduction of new trade barriers and escalating geopolitical tensions. In such a situation, central banks outside the US tend to proceed with caution, Morgan Stanley points out.

At the same time, the bank is confident that the development of economic cycles will be a more important factor in determining market trends than the upcoming election.