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Will the US election be the next Black Swan event for global markets?

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The problem with black swan events is that they are meant to be rare, but they seem to be becoming more frequent. The next major and unpredictable challenge for investors looks to be the upcoming US election, and the prospect of further political instability in the world’s largest economy, regardless of who wins.

The efforts made by Donald Trump extremists to subvert the US electoral process in January 2021 set a new precedent in American politics.  It now has fund managers and private investors increasingly worried, as they contemplate the impact of a political crisis in America on US dollar assets.

What chance civil war in the US?

“The US is currently more divided ideologically and politically than at any time since the 1850s, when tensions boiled over into civil war,” said Nigel Green, CEO of deVere Group, the international wealth management firm. “This deep division, combined with the potential for significant civil unrest, creates a highly volatile environment for investors in the world’s largest economy.”

“Currently, we put the chances of a second American Civil War at around 25%.”

While this may sound alarmist, the mere consideration of such a possibility highlights the severity of the current political climate and the need for investors to be aware of the risks. The events of January 6, 2021, when the Capitol was stormed by an angry mob, serve as a stark reminder of how quickly political tensions can escalate into violence. These scenes were a shocking indicator of the potential for widespread civil unrest.

Donald Trump’s recent historic criminal conviction has added another layer of unpredictability to the 2024 presidential campaign. Trump’s legal battles introduce unprecedented uncertainty. Investors must now consider the potential impacts of a candidate who might face further significant legal challenges while running for the highest office in the land.

“This situation raises further concerns about the stability of US governance and the rule of law, critical factors for maintaining investor confidence,” said Green at deVere.

Expect market volatility in the autumn

The heightened political risk associated with the upcoming election is likely to lead to significant market volatility. The possibility of a civil war aside, investors are now facing increased risks due to the potential for regulatory changes, shifts in trade policies, and broader economic instability. Green is advising investors to reduce their exposure to US assets as we get closer to the election. He suggests international diversification to shield portfolios against US-centric political risks.

This presents many investors with huge problems. Central banks around the world still sit on massive piles of US dollars in their reserves, and many pension funds outside the US – and governments – own masses of US government bonds and even municipal debt, not least of which is the Chinese government. That aside, due to the relative size of the US equities market, many investors have large allocations to American stocks.


We’ve had further discussions on this topic with fund managers over the past couple of weeks. There seems to be an expectation that we will see some cautious diversification out of USD assets this summer, and much of this will be driven by the news flow on the political front. At the moment, though, there is more concern about the direction of interest rates and US unemployment and inflation figures.

Gold market is a likely beneficiary

Gold will remain a focal point here, as it seems to be an asset which cautious investors will still consider outside the USD. While we have seen some volatility in the gold price due to the news that China paused its gold purchases in May, analysts think ongoing global political uncertainty is going to fuel more gold buying regardless.

“The movement in gold prices reflects the market’s sensitivity to global uncertainty dynamics and economic policy decisions,” observed Antonio Ernesto di Giacomo, an analyst with XS.com. “The combination of factors such as the pause in gold purchases by China, the strength of the dollar, and political tensions in Europe has created a volatile environment but has also highlighted gold’s role as a haven in times of uncertainty.”

At the moment, however, stock investors remain bullish on the US. The Nasdaq reached a record high overnight, closing at 19,660 points, marking a significant milestone in the US stock market. Meanwhile, the S&P 500 neared its previous day’s high before experiencing a correction. In contrast, the Dow Jones remained stable around the 38,600-point level. These movements reflect the market’s response to macroeconomic indicators and Federal Reserve decisions influencing investor expectations, rather than any worries about the election in November.

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This article does not constitute investment advice. Make sure you do your own research or consult a professional advisor.

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