Election years can be a testing time for investors of all shapes and sizes, and the close-run contest between two incumbents, Kamala Harris and Donald Trump, appears to be too difficult to call for anybody on Wall Street hoping to sidestep the prospect of economic uncertainty for the United States. 

The build-up to the 2024 presidential election has been exceptionally unpredictable for many reasons. Joe Biden stepping out of the race and the assassination attempt on Trump have served as two pivotal examples of the unforeseen circumstances thrown up on the campaign trail. For the increasing role that artificial intelligence is playing in forecasting for broker-dealers, the technology could be set to face its most testing months yet. 

Could institutional use of AI on Wall Street be set for its biggest reckoning as election uncertainty appears to spell significant volatility for US markets? Let's take a deeper look at how Q4 2024 may be a watershed moment for trading intelligence: 

Measuring The Impact Of The US Election

Because of varying policies and fiscal stances, polling data can have a significant impact on Wall Street. 

Recently, Morgan Stanley quantified the market impact of a Republican victory, which could see an extension of the 2017 tax cuts that may result in higher interest rates impacting corporate profits and stock valuations. The introduction of tariffs could also impact overseas trade and international stocks, while prospective investment opportunities in growth markets like energy, telecommunications, and utilities could offer added value. 

Statistically, it's worth remembering that markets generally perform well regardless of who occupies The White House.

IBKRCampus data shows that the best-performing hypothetical portfolio between 1900 and 2023 by some margin would be a ‘bipartisan' one that retained investments during Democratic and Republican administrations. 

Data shows that $10,000 invested during this time would return $9.9 million when kept fully exposed to markets between 1900 and 2023. However, $10,000 invested only during Democrat and Republican presidencies would've returned approximately $528,000 and $181,000, respectively. 

Additionally, the reason for these differences between Democrat and Republican returns is more closely linked to factors like major financial crises such as the Great Depression and the impact of war. 

Although this data suggests that the impact of presidencies and elections can be minimal over the long term, the build-up to elections offers periods of heightened market sensitivity, especially when dealing with close-run races. 

The uncertainty stemming from elections that are too difficult to call can increase market fluctuations, with some risk-averse investors opting to withdraw their positions to re-enter the stocks and shares later on in an event that generally causes a post-election rally for Wall Street. 

However, these periods of volatility can be an excellent opportunity for institutions to capitalize on uncertainty and take advantage of price movements. 

Backing broker-dealer pursuits in identifying and taking fleeting price movements in stocks and commodities on Wall Street will be artificial intelligence, which has grown substantially in the years that followed the 2020 US presidential election. But is the technology adaptable enough to deal with the volatility thrown up by an unpredictable race for the White House? 

New Challenges For Groundbreaking AI

Institutions like broker-dealers have been utilizing artificial intelligence to gain unprecedented predictive insights into a number of markets to better shape decisions and anticipate future price trends. 

Fundamental analysis with AI comes in many forms, with many institutions now relying on alternative data like satellite imagery and credit card transactions fed into machine learning (ML) models to identify fresh alpha signals as they emerge. 

Broker-dealers can tap into big data sets in order to discover cutting-edge correlations that can provide faster opportunities to develop investment strategies ahead of rivals. 

While these examples sound highly adaptable, they can't predict an assassination attempt on the Republican nominee or pinpoint the moment the sitting president decides to drop out of the race for another term. So is AI capable of living up to expectations in election years? 

The answer may rest in the level of sentiment analysis that leading AI platforms can conduct on behalf of users. 

The ability of these models to utilize social media sentiment analysis for instances of herding behavior and attitudes towards parties and candidates can help to use social listening to understand where the next twist or turn in the race will come from and how US citizens are reacting to breaking news can help to shape broker-dealer decisions on Wall Street. 

Already, social media herding behavior can carry a significant impact on market movements, so this information reappropriated to voter intentions could help to get to the bottom of election metadata to better track market opportunities. 

Pursuing Accuracy

Artificial intelligence tools can help to provide broker-dealers with a broad understanding of structured and unstructured data sets that would take humans too much time to process to capitalize on opportunities leveraged by volatility. 

Adapting AI to trade stocks means that trends can be identified faster with greater accuracy to present human traders with actionable insights that can be converted into trading strategies. 

United with prime services that can utilize relationships with key investment banks for superior access to global equity, forex, and commodities markets, rapidly accessing and interpreting these insights carries the potential to supply broker-dealers with the tools necessary to trade effectively off the back of emerging trends in sentiment and breaking news. 

AI's Biggest Test On Wall Street

Artificial intelligence algorithms haven't been tasked with overcoming a chaotic US presidential campaign yet, and 2024 will stand as one of the biggest tests yet for the emerging technology. 

For broker-dealers seeking to take advantage of short-term price fluctuations with AI, Q4 2024 is set to be full of opportunities that will challenge intelligence tools in unprecedented ways. With the right blend of human scrutiny and sentiment analysis, we could be looking at a watershed moment for the incorporation of AI in driving broker-dealer performance.

On the date of publication, Dmytro Spilka did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer. Dmytro Spilka does not intend to make a trade in any of the securities mentioned above in the next 72 hours.