05 November 2024
Ahead of the US Presidential Election, Lindsay James, investment strategist at Quilter Investors, considers the impacts on investors:
“The 2024 US presidential election holds significant global importance, even in a year when around half the world’s population are voting in elections. The result will have far-reaching implications for international relations, particularly given the ongoing conflicts in the Middle East and Ukraine, as well as for economic policies at a time of high government debt. As the world’s largest economy and a key player in international politics, the direction the US takes can influence global markets, trade agreements, and geopolitical strategies.
“Despite its global significance, the US election historically has had minimal impact on long-term market returns. Markets tend to be resilient and adapt to new administrations, regardless of the party in power. Over the long term, factors such as corporate earnings, economic growth, and interest rates play a more substantial role in determining market performance. Historical data shows that the market hasn’t been observed to prefer one party in power over another, whilst even investing in alignment with policies that have been favoured by the winner are not a path to returns. For example, renewable energy stocks typically performed better under President Trump than President Biden, despite opposing policies, largely because of the sharply differing interest rate backdrop under each administration.
“Whilst a second Trump term clearly has significantly higher ‘tail risks’ than most of his predecessors, such as the risk of interfering with the independence of the Fed, abandoning NATO or re-writing the rules on trade tariffs, he is also a man who sees the stock market as a barometer of his success and popularity. Meanwhile Kamala Harris must balance her desire for higher taxation with the likelihood that the Republicans will win control of the Senate, potentially limiting the scope of her fiscal ambitions.
“That said, the short-term market volatility around US elections can be pronounced. Investors often react to the uncertainty and potential policy changes that a new administration might bring. This year, the market has already seen significant movements due to the so-called ‘Trump trade,’ where investors have weighed his policies and subsequently moved to price in higher inflation, higher interest rates and a stronger dollar. As polls have seen his apparent lead eroded in recent days, these trades have been partially unwound. Whilst the heightened level of uncertainty is likely to lead to further swings in asset prices over the coming days, investors should avoid basing investment decisions on the outcome but instead focus on the fundamentals of corporate earnings, valuations and interest rates, where signals are broadly reassuring.”
