Tomorrow, Australians head to the polls for the Australian Federal Election.
The outcome will determine whether Prime Minister Anthony Albanese will be able to retain his job or if Opposition Leader Peter Dutton will take over. The result will also decide which kind of government is formed, an Australian Labour Party (ALP) majority, a Liberal National Party (LNP) majority, or a minority government.
After witnessing the US stock market rally following Donald Trump's 2024 Presidential victory, investors may be accustomed to expecting strong reactions to national elections.
In the month following Trump's victory, the S&P 500 Index (SP: .INX) surged 5%. Stocks considered to benefit from a Trump presidency rallied significantly harder. For example, Tesla climbed more than 45% in the month that followed Trump's victory.
However, according to Macquarie analysts, the Australian Federal Election is unlikely to attract anywhere close to the same reaction. Here's why.
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What are Macquarie's expectations?
According to a 1 May Macquarie research report, betting markets have assigned an 85% chance to an ALP win. However, they are unlikely to gain enough seats to secure a majority government.
This outcome last occurred in Australia in 2010. Immediately after that election result, the All Ordinaries Index (ASX: XAO) fell 1.3%.
After 17 days of trying to win over the support of minor parties and independent members, a Labor government was formed led by Prime Minister Julia Gillard. This was Australia's first minority government since 1940-1941.
The repeat scenario expected tomorrow is synonymous with Canada's recent election, in which the incumbent party won but no majority was formed.
If the betting markets are correct, Macquarie expects:
A relatively muted reaction to an ALP win, with a small positive if a majority and a small negative if a minority. The fall is likely related to how many cross- bench seats are needed.
A muted reaction to the likely election outcome (largely status quo), [allows] Australia to remain a [relatively] safe haven with political stability.
After the recent market turnaround, the ASX is up around 3% during the Federal Election period.
Macquarie also noted that markets would probably prefer an LNP win; however, this is unlikely. They also noted that a 'Trump tweet' is likely to have a bigger impact on ASX returns than the Federal Election outcome.
Investors hoping for some stock market excitement after the federal election verdict might have better luck finding it on Trump's Twitter (now Truth Social) feed.
