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Political Events and Elections Impact on Financial Markets

Check out how political events and elections affect financial markets in this resource.

 Dear Friends,

In today's world, the pursuit of financial freedom is becoming increasingly important for individuals and societies. Financial freedom is the ability of a person to meet their financial needs and choose the lifestyle they desire. In this pursuit, trading in financial markets is a critical step towards achieving financial freedom. Many people consider trading in financial markets as an effective way to achieve this goal. With the right knowledge and skills, it is possible to generate passive income, achieve returns, and reach our financial goals through trading in financial markets. This way, we can move away from financial worries, focus on other aspects of our lives, make retirement plans, and maintain the lifestyle we desire by controlling our financial situation.

Sometimes, even when we perform accurate technical analysis while trading in financial markets, we may not achieve the desired results. This may be because we overlook fundamental analysis data. News such as political events, elections, geopolitical tensions, and terrorism can affect the markets. In such cases, technical analysis may be insufficient for trading. The best approach in financial trading is to use both technical and fundamental analysis together. One of the data included in fundamental analysis is news related to political events and elections. Such events can have an enormous impact on financial trading. Now, we will explain this with examples.


Political events included in special news can shake the confidence of all market players. For example, a sudden political crisis or a change of government in a country can create uncertainty in the markets, leading to sudden fluctuations in stocks and other assets.

July 15 Coup Attempt:

On the night of July 15, 2016, a group of soldiers attempted a military coup to overthrow the government in Turkey. During the coup attempt, many critical locations were seized, media outlets were pressured, and chaos was created across Turkey. The then-president Recep Tayyip Erdoğan called on the public to take to the streets and resist the coup plotters. This call was met with widespread participation from the public, and many people took to the streets. During the coup attempt, clashes occurred between civilian resistors, police, loyal soldiers, and the coup plotters. Many people lost their lives and were injured in these clashes. The coup attempt ended in failure thanks to the resistance of the public and security forces. The coup plotters were quickly neutralized, and control was restored to the government. After the coup attempt, a state of emergency (OHAL) was declared nationwide in Turkey, during which many people were detained or arrested.

The coup attempt also had a tremendous impact on the international community. Many countries and international organizations issued statements in support of Turkey's democratically elected government. July 15 is commemorated in Turkey as "Democracy and National Unity Day" and is remembered each year with various events. This day has become an important symbol to honor the memory of those who resisted the coup attempt.

The impact of the July 15, 2016 coup attempt on financial markets was quite pronounced and led to significant fluctuations in various economic indicators. Immediately following the coup attempt, there were sharp declines in the Istanbul Stock Exchange (BIST). On July 18, the first trading day after the attempt, the BIST 100 index lost more than 7%. Take a look at the weekly chart of the BIST 100 Index below:

Explore the BIST 100 index drop after the July 15, 2016 coup attempt.
BIST 100 weekly chart Post-Coup 2016

This event not only affected the stock market but also had a negative impact on the foreign exchange market. During and after the coup attempt, the Turkish Lira (TRY) experienced significant depreciation against the US Dollar (USD) and other foreign currencies. The USD/TRY exchange rate rapidly rose immediately after the attempt. The Central Bank of the Republic of Turkey (CBRT) implemented various measures to calm the markets and provide liquidity. These interventions were aimed at preventing further depreciation of the TRY in the short term. Take a look at the daily chart of the USD/TRY exchange rate during that period:

See how the July 15, 2016 coup influenced the USD/TRY currency pair.
Turkish Lira vs. US Dollar chart after 2016 Coup


Another political event that affected financial markets is known as "Brexit." Brexit, a combination of "Britain" and "Exit," refers to the United Kingdom's (UK) departure from the European Union (EU). The process of the UK leaving the EU began with a referendum held on June 23, 2016. In the referendum, 51.9% of British voters chose to leave the EU, and the process was officially completed on January 31, 2020. There are several main reasons behind the Brexit decision. One of them was the UK's contributions to the EU budget and the use of EU funds. Brexit supporters argued that financial contributions to the EU were a burden on the UK economy. Another reason was related to Immigration and Border Controls. The EU's free movement policy increased the flow of immigrants to the UK. This led to growing concerns about immigration among some segments and a desire for the country to independently determine its immigration policies. Many British voters believed that the country's EU membership restricted its national sovereignty and decision-making authority. Brexit has been a critical event not only for the UK but also for global financial markets. From the beginning of the process, it created uncertainty and volatility in the markets, affecting the risk perception of traders and investors.

Brexit uncertainty also caused volatility in stock markets across Europe, and some sectors were negatively affected. In the days following the referendum, there were dramatic declines in the London Stock Exchange (FTSE 100 and FTSE 250 indices). The impact of the Brexit referendum on the FTSE 250 Index is shown in the chart below:

Examine the FTSE 250's performance after the Brexit vote.
Brexit Impact on FTSE 250 Index

There was also significant movement in the forex market. Immediately after the referendum result was announced, the British Pound (GBP) experienced a sharp decline against the US Dollar (USD) and the Euro (EUR). The Pound fluctuated in the period following the referendum and generally traded at a lower level. The impact of the Brexit referendum is shown in the daily chart of the British Pound/US Dollar below:

See the daily GBP/USD chart showing the impact of the Brexit referendum.
Brexit Effect on GBP/USD Chart


Elections are also among the special news events that can affect financial trading. When we talk about elections, we generally refer to the process in which the citizens of a country vote to elect their government or specific public officials. These processes have a direct impact on how the government and policies will be shaped in the future. The effects of a new government's monetary policy can influence interest rates and, consequently, borrowing costs. Changes in interest rates have direct effects, especially on exchange rates and bond markets.

2016 US Presidential Elections:

The 2016 US Presidential Election was followed with great interest worldwide, and Donald Trump's election as president had far-reaching and complex effects on financial markets. Trump's election led to a major surge in the stock market due to his promises of tax cuts and deregulation. During his campaign, Trump pledged substantial tax cuts, particularly reducing corporate tax rates. In 2017, the tax reform law passed under the Trump administration lowered the corporate tax rate from 35% to 21%. Tax cuts were positively received by the markets with the expectation that they would increase corporate profits and thus boost stock values. As a result, investors increased their demand for stocks, and the stock markets surged. In the days and weeks following the announcement of the election results, US stock markets experienced a significant rise. Major indices such as the Dow Jones Index, S&P 500, and Nasdaq saw substantial gains. In the daily chart of the S&P 500 Index below, you can observe the surge following the US Presidential Election on November 8, 2016:

See the S&P 500 chart showing the impact of the 2016 US Presidential Election.
S&P 500 Surge Post-2016 US Election

Remember: In financial markets, there is a chance of achieving high profits as well as the risk of losing money. Emotions like fear, impatience, and greed can lead to poor decisions in financial markets. Therefore, only trade with money you can afford to lose. Instead of making emotional decisions while trading, always act with knowledge-based strategies. Learn to assess market conditions well by using both technical and fundamental analysis tools to create a successful trading strategy.

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