All You Need to Know About the 2024 US Election and How It Will Affect Markets
Incredibly important but incredibly noisy
Why This Election Matters for Markets
As the 2024 U.S. presidential election swiftly approaches, participants closely watch the political landscape, knowing that the results can shape market trends for years to come. Markets are no strangers to volatility during election cycles, but in my opinion, the stakes are even higher this time. Both Vice President Kamala Harris and former President Donald Trump offer sharply divergent policies, from fiscal spending to trade and energy. Each potential outcome could create ripple effects across multiple sectors, from tech and energy to healthcare and defence.
For any investors, it’s crucial to cut through the noise and understand how these political shifts will influence markets be that the immediate response or in the long term. Whether through fiscal policies, corporate taxes, or trade tariffs, the direction set by the next president will drive asset prices in some shape or form, sector rotations, and investment opportunities. This post breaks down the key points to watch, diving deep into each candidate’s platform and the sectors most likely to be affected.
1. Macro Themes – Election Volatility and Market Sentiment
Election years are historically volatile for financial markets, and 2024 is no exception. Equity markets generally experience higher volatility in the three months leading up to a presidential election than in non-election years.
While the 2024 election is expected to follow this trend, there are additional complexities. The market is currently digesting mixed signals: on one hand, the economy is cooling with inflation easing slightly; on the other, the potential for disruptive trade policies and new regulatory frameworks keeps volatility elevated. Many have been silently adjusting their portfolios, rotating out of high-growth sectors and into more defensive names, such as utilities and consumer staples.
Fun fact: In past election years, the S&P 500 tends to underperform in the month before the election, only to rally after the results are confirmed. In 2020, for example, the S&P 500 dropped nearly 7% in October, before rebounding more than 10% by year-end. Not that we saw that kind of vol in October.
Trump vs. Harris – Divergent Policy Outcomes
The stark policy differences between Trump and Harris make this election particularly market-sensitive. The outcome table below comes from my recent post, the Quarter Ahead; click here, ICYMI!
Kamala Harris has signalled a continuation of “Biden’s” policies, with plans to increase corporate taxes to 28% (up from 21%) and capital gains taxes on the wealthiest households. This could weigh on market sentiment in sectors like tech and financials, both of which have thrived on low tax rates.
Donald Trump, by contrast, has pledged to cut taxes further, potentially making the 2017 Tax Cuts and Jobs Act (TCJA) permanent. This would provide a boom to corporate profits, particularly in sectors like large-cap tech, energy, and industrials. However, Trump’s trade policies, particularly with China, could ignite another round of tariff wars, increasing costs for import-heavy industries like consumer goods and tech.