How the 2024 US election could affect your investments
On 5 November 2024,the US will vote on who will become their 47th president. Though it is not set in stone, following Trump’s caucus success in Iowa and New Hampshire, it is looking quite likely that there maybe a repeat of the 2020 race between Joe Biden and Donald Trump.
In addition, 2024 could see a change of power in both the Senate and the House, meaning the makeup of Congress under the next president is unknown.
Investors often look to US elections and their results for signals for future market trends, and economists have undertaken plenty of research to determine the relationship between election results and market performance. The party of the victorious nominee, their economic policies, external economic forces and many other factors could influence returns in the wake of an election.
Like all data, it is useful to be aware, and interesting to know how world events shape economic outlook, but don’t let it distract you from your plan and your objectives. It is part of our role at Black Swan Capital to ensure we are taking factors like this into consideration on an ongoing basis, and applying them to your situation as relevant to you.
Here’s what experts believe will happen to the world economy in the wake of the 2024 US presidential election, and how it may affect your investments.
Experts have some expectations of what either a Trump or Biden presidency may look like
On paper, Biden has a lot of reasons to be optimistic about his chances of winning a second term. The US is currently in a good economic position with low unemployment, and inflation stabilising at lower levels.
Despite this, the incumbent is not popular. Redfield & Wilton Strategies’ research gives Biden an approval rating of 38%. His age is a big concern for many – if he wins, he will be 86 when his second term ends.
Though not confirmed as the Republican candidate yet, Trump is the bookmakers’ favourite for the presidency in 2024. With primary wins in Iowa and New Hampshire already under his belt, he will almost certainly receive the Republican nomination.
If Biden were to return to office, experts believe it likely he will try to resurrect some of his Build Back Better proposals. These included funding for subsidised childcare, universal pre-kindergarten, and paid family and medical leave. Extra spending could lead to concerns around fiscal sustainability, providing a boost to Treasury yields.
Additionally, there is a possibility Biden would raise the top rates of Corporation, Income and Capital Gains Taxes, and tighten regulation in areas such as banking and healthcare, all of which could result in price drops in some equity sectors.
Another Trump tenure is likely to lead to uncertainty. He could be convicted of a crime and incarcerated during his potential time in office – this would be an unprecedented situation. Additionally, his foreign policy may result in the US becoming more isolated, particularly if he shows leniency towards Russia.
Uncertainty is likely to lead to volatility in the markets – as a result, safe haven investments such as bonds and gold may rally, and so may be a good option for you if Trump were to come to power.
A president’s second term often sees lower investment returns
If either Biden or Trump wins, it will mean a second term in office – a result which, historically, has led to lower investment returns.
Analysis from Schroders found that, when a president returns to the White House for a second term, returns across various major asset classes tend to be lower than they were in the same president’s first term. 10-year Treasury yields were the only asset class to not follow this trend.
These historic trends suggest that returns could be lower over the next four years than the previous four – although still positive in most areas.
A close contest is likely to benefit investors
Analysis provided by First Trust found that, historically, S&P 500 returns during election years when a Republican was elected were 15.3%. That’s much higher than the 7.6% seen in years when a Democrat came to power.
However, the presidential election is not the only factor that determines the party in control of American politics. This year, every seat in the House, and 34 seats in the Senate, will also be contested, making it a distinct possibility that whoever wins will preside over a split Congress.
Traditionally, a non-unified government results in compromises between the two parties, forcing more moderate policies and providing a more stable policy backdrop for investors.
Additionally, Schroders’ analysis found that, since 1948, split governments have seen averaged total returns of US equities of 14.3%. Unified governments on the other hand have seen a lower average return of 13%.
In light of the above data, if the presidential race and the battle for Congress is tight, your investments may see higher returns – particularly if a Republican comes to power.
Returns may be more influenced by the general economic environment than election results
Though the results of the election and subsequent policy changes will undeniably influence investment returns, other external economic factors may have more of an impact.
Analysis from US Bank found that presidential election results had little impact on market performance. Even a one-party “sweep” of both the White House and Congress historically failed to have a statistically significant impact on average three-month S&P 500 returns.
As the below table illustrates, only two of the six scenarios analysed had a statistically significant positive impact on returns. A Republican sweep created negative pressure.
On the other hand, all economic regimes looked at by US Bank had a significant impact on returns. Rising growth, falling inflation, and a combination of the two all had a positive influence on average three-month S&P 500 returns.
Get in touch
If you are unsure about how global events may impact your future investment returns, do get in touch. Please contact us at info@blackswancapital.eu to find out how we can help you build an investment portfolio aligned with your long-term goals – whoever wins the election.
Please note
This article is for general information only and does not constitute advice. The information is aimed at retail clients only.
The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.
Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.
