The 2024 U.S Election: Different Shades of Economic Nationalism

According to a recent Pew poll, 26% of American's have an unfavourable opinion of both candidates, with this view especially prominent among voters aged 18-29 (41%) and those without strong party affiliation (averaging 36%) ¹. Part of the reason is increased polarization, but the age of the candidates is also a factor. ²

A March survey by Piper Sandler says that 87% of investors expect a close presidential election and 82% predict a divided government³. Moreover, the contest will feel familiar, as it is a repeat of 2020. This is unusual as Biden vs. Trump 2024 is only the 7th rematch in U.S. history (out of 60 elections) and the first for almost everyone voting this year (the last rematch was 1956, Eisenhower vs Stevenson).

Before we dig into the investment implications from the election, its important to note that, historically, markets largely have been unaffected by U.S Presidential election outcomes.

The direction of the market, no matter the outcome, is more likely to be driven by fundamental factors like interest rates and corporate earnings. Sure, the possibility for short term market gyrations based on headlines and political rhetoric can be expected, but longer term, asset values and returns are largely driven by fundamentals.

What could a Democratic or Republican party win mean for the macroeconomy and markets? Our thoughts in this blog will emphasize potential policy changes under a second Trump administration, mainly because a Biden re-election would, to a considerable extent, maintain the status quo.

Both candidates are pursuing policies that are inflationary. This includes trade, tariff, and industrial policies as well as an expansionary fiscal impulse. While Trump favours deregulation which is broadly disinflationary, this would be at least partially offset by tighter immigration policies. It is also probable that additional tariffs and higher debt levels could lead to lower medium-term growth prospects and higher interest rates. Among other things, this could raise the likelihood of a fiscal crisis at some indeterminate point in the future.
From a currency standpoint, we also expect a stronger U.S Dollar, especially against the Chinese Yuan. Although Trump has a more extreme form of decoupling in mind, China has been the biggest beneficiary of the hyper-globalization era and will be hit the hardest as we play that movie in reverse. Other countries with a large bilateral surplus could see their economies and currencies face similar challenges.

The combination of tax cuts and deregulation could result in equity market performance similar to 2017, at least for a brief period. This view is corroborated by a March survey by Piper Sandler which showed that 61% of investors expect the S&P 500 to appreciate if Trump wins³. Such an outcome would be especially probable in the unlikely event of a Red Wave. The biggest sector winners could include tech and financials, as occurred in 2017. We also believe energy would benefit even though it underperformed after Trump won in 2016.

It is also worth noting that, despite of all the attention being paid to the election campaign and the two candidate's economic policies, very few investors have admitted that the election is currently impacting their investment decisions, at least over the past several months (chart below). This appears to reflect the level of uncertainty regarding all three races (the Presidency, the House and the Senate), with investors waiting for more clarity before placing their trades.

Source: Piper Sandler client survey (1,086 respondents, survey undertaken mid-March)

Stay tuned for more commentary as we inch closer to U.S election day.

Editor's Note: On July 21st President Biden announced that he will not seek re-election and endorsed Kamala Harris as the Democratic candidate for President. Kamala Harris’s candidacy was confirmed at the Democratic National Convention in August. Policy positions for Harris are likely to remain status quo and very similar to Biden’s.

¹ Pew Research Center survey of 12,693 adults conducted Feb. 13-25.

² Joe Biden, at 81, will be the oldest ever presidential candidate, while Trump will be 78. Since 1789 there have only been four cases where the president was age 70 or higher. Ten were in their forties, 35 in their fifties and 19 in their sixties.

³ Piper Sandler client survey, March 2024.

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