What will happen to the markets after the U.S. election?

[UNITED STATES] The 2024 U.S. Presidential Election is shaping up to be one of the most consequential political events in recent history, with far-reaching implications for global financial markets. As Vice President Kamala Harris and former President Donald Trump prepare to face off in November, investors, analysts, and economists are closely examining how the election outcome could influence various aspects of the economy and market performance. This comprehensive analysis explores the potential impacts of the election on financial markets, considering historical trends, policy implications, and expert insights.

Historical Context: Presidential Elections and Market Performance

The relationship between U.S. presidential elections and market performance has been a subject of extensive study and debate. Historically, the stock market has shown a tendency to perform well during election years, regardless of the outcome. According to data from S&P Global, the S&P 500 has only experienced two negative election years in the past seven decades, highlighting the resilience of markets during political transitions.

Simon Moore notes, "Historically, markets have tended to do well in election years. That's partly because politicians often aim to boost the economy in the run-up to an election." This observation underscores the importance of understanding the broader economic context surrounding elections, rather than focusing solely on the candidates themselves.

Economic Policy and Fiscal Stimulus

One of the most significant factors influencing market performance in the wake of a presidential election is the anticipated economic policy direction of the new administration. Both Harris and Trump have outlined distinct visions for the U.S. economy, with potential implications for fiscal stimulus, tax policy, and regulatory environments.

Harris's Economic Agenda

Vice President Harris has proposed a continuation and expansion of many of the Biden administration's economic policies, including:

• Increased infrastructure spending
• Expansion of social programs
• Higher taxes on corporations and high-income individuals
• Stronger environmental regulations

Trump's Economic Platform

Former President Trump's economic agenda largely aligns with his previous term, focusing on:

• Tax cuts for individuals and businesses
• Deregulation across various sectors
• America-first trade policies
• Expansion of domestic energy production

The implementation of these policies could have significant impacts on different sectors of the economy and, by extension, the stock market. For instance, infrastructure-related stocks might benefit under a Harris administration, while energy and financial sector stocks could see gains under Trump.

Trade Relations and Global Markets

The outcome of the 2024 election could have profound implications for U.S. trade relations and global markets. Trump's previous tenure was marked by an aggressive stance on trade, particularly with China, which led to increased market volatility and uncertainty in global supply chains.

Moore observes, "Trade policy is an area where the candidates differ materially. A second Trump term may see a return to more aggressive trade tactics, especially with China. Harris is more likely to work within existing trade frameworks, though still with a focus on protecting American interests."

Investors should be prepared for potential volatility in currency markets, especially concerning the U.S. dollar, as trade policies evolve post-election. Additionally, emerging markets and multinational corporations could be significantly impacted by shifts in U.S. trade strategy.

Federal Reserve Policy and Interest Rates

While the Federal Reserve operates independently of the executive branch, the president's economic policies and appointments to the Federal Reserve Board can indirectly influence monetary policy. The Fed's decisions on interest rates and quantitative easing have substantial effects on financial markets.

"The Fed's independence is critical, but the president's economic policies can create an environment that influences Fed decision-making," Moore explains. "For example, expansionary fiscal policy might prompt the Fed to maintain higher interest rates to control inflation."

Investors should monitor how the election outcome might affect expectations for future interest rate movements and the broader monetary policy landscape.

Sector-Specific Impacts

Different sectors of the economy are likely to be affected in varying ways depending on the election outcome:

Healthcare: A Harris victory could lead to expanded government involvement in healthcare, potentially benefiting hospital stocks but pressuring pharmaceutical companies. In contrast, a Trump win might see a continuation of market-driven healthcare policies.

Energy: Trump's support for traditional energy sources could boost oil and gas stocks, while Harris's focus on renewable energy could drive growth in the clean energy sector.

Technology: Both candidates have expressed concerns about big tech, but their approaches differ. Harris may pursue stronger regulations, while Trump might focus on issues like content moderation and antitrust concerns.

Financial Services: Trump's deregulatory agenda could be positive for financial stocks, while Harris might push for increased oversight of the banking sector.

Market Volatility and Investor Sentiment

As the election approaches, markets may experience increased volatility due to uncertainty about the outcome and its potential implications. Moore advises, "Investors should be prepared for short-term volatility around the election, but it's important to maintain a long-term perspective. Historical data suggests that markets tend to perform well over time, regardless of which party is in power."

Investor sentiment can play a crucial role in short-term market movements. The clarity of the election outcome and the smoothness of the transition process can significantly impact market stability in the immediate aftermath of the election.

Long-term Investment Strategies

While elections can have significant short-term impacts on markets, long-term investors should focus on fundamental economic factors and company performance rather than making drastic portfolio changes based on political outcomes.

Moore recommends, "Diversification remains key. A well-balanced portfolio that includes a mix of domestic and international stocks, bonds, and alternative assets can help mitigate risks associated with policy shifts following the election."

Additionally, investors should consider the potential for policy gridlock if the presidency and Congress are controlled by different parties, which could limit the scope of major policy changes.

The 2024 U.S. Presidential Election between Kamala Harris and Donald Trump presents both challenges and opportunities for financial markets. While historical trends suggest that markets tend to perform well during election years, the distinct policy approaches of the candidates could lead to significant sector-specific impacts and short-term volatility.

Investors should remain vigilant and informed about the potential market implications of the election outcome while maintaining a long-term perspective on their investment strategies. By understanding the historical context, potential policy shifts, and sector-specific impacts, investors can better position themselves to navigate the post-election financial landscape.

As the election approaches, it will be crucial for market participants to stay informed about polling trends, policy proposals, and economic indicators. Regardless of the outcome, the 2024 U.S. Presidential Election is set to be a pivotal moment for financial markets, with repercussions that will likely be felt for years to come.