Does the US election matter for markets?
October 29, 2024
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7 min read
With China’s economic star dimming in recent times the USA has consolidated its status as the Undisputed Economic Heavyweight Champion of the World. The US stockmarket also wields immense influence over other markets around the world. But does it really matter, for investors, who sits in the Oval Office?
To answer this question we turned to portfolio managers and market strategists from our Expert Collective and asked them whether the US election matters, and if so what the likely impacts to markets might be:
Mabrouk Chetouane, Head of Global Market Strategy, Natixis Investment Managers: “The confrontation between Kamala Harris and Donald Trump is entering its final phase and the gap between the two candidates is so narrow it is statistically impossible to draw a clear conclusion as to who will win. Beyond the clear ideological differences between the candidates, they have other policy differences which, if implemented, would affect the US economy and markets. Initial estimates of D. Trump’s plans point to a $7,500 billion increase in US debt over the next 10 years, whereas implementation of K. Harris’s plans is estimated at $3,500 billion over 10 years. While roughly half the size, this increase is nonetheless substantial.
In the short term, the implications for markets depend on the winner’s ability to implement his or her program. In this respect D. Trump is in a better position, being more likely to secure a majority in both houses, if he wins, and so freedom from the debt ceiling. If this occurs it would support growth in corporate profits for companies of all sizes and therefore US share prices. The inflation generated by such a support plan would be a positive factor for corporate margins, whereas it would penalise bond markets.”
Aziz Hamzaogullari, Founder, Chief Investment Officer and Portfolio Manager of the Loomis Sayles Growth Equity Strategies Team: “What I find is that investors position their portfolios for a certain outcome, but that outcome is usually never long-lasting because it's the fundamentals of companies that fully win over the long term.
So, for example, when President Clinton was elected in 1992, the expectation was that that would be really, really bad for healthcare companies. And from November of 1992 to January of 1993, healthcare companies actually underperformed, and they were the worst performing sector. However, during the entire first term of President Clinton and second term of President Clinton, Healthcare actually was the second-best performing sector, doing much, much better than the index. And for the first term of President Clinton, healthcare stocks were up around 22%, and tech companies were up around 26.5% versus benchmark being up only 16.5%. In the second term, similarly, healthcare stocks were up another 22%.
The lesson here is that whatever people think is going to happen, and they react to, is overcome by structural drivers for these businesses. This is one example, but there's so many other examples with President Obama, President Trump, and President Biden.”
Jens Peers, CIO, Mirova US: “We build portfolios based on a long-term view on how the world is going to evolve. Now, politics play a role, obviously, but we don't know who's going to be the next President in the US, or any other country. The world is going to change no matter what. And companies have to make very long-term plans on how they invest irrespective of who is the President of the United States.
For example if we look at a potential Donald Trump victory, to some extent we already know what may happen because we've lived through that already. There's a lot of noise. While he tends to stand for a lot of themes where sustainable investors are typically not exposed to, the classic energy sector for instance, during his first Presidency the energy sector was actually one of the worst, if not the worst, performing sector during that term. And the same thing may happen again if he is elected again. If you pump up more oil, but the demand is the same, you're going to have a lower oil price. That's typically not good from an investment point of view.
Another thing to consider is that, while we may think that the US is run by the Federal Government, a lot of things happen on the state level. So the more that some things may go in one direction at a Federal level, the more some States go in the other direction. So, we're not too worried about the US election. I think there's going to be a lot of noise, a lot of volatility, but it's our job to navigate around that, and keep our heads cool, and keep focusing on the long term.”
William C. Nygren, CIO-U.S. Harris | Oakmark: “Given a dysfunctional political environment, we are fortunate that economic forces are stronger than political forces. Every four years, we are told that this election is the most important ever. But the stock market goes up under both Republican and Democrat administrations. So, we don’t obsess over it. On the margin, we would expect a change in administration would make business consolidation more likely, which could allow our holdings that have potential acquisitions sitting in limbo to complete them.”
Chris Wallis, CEO and CIO, Vaughan Nelson: “I tend to not pay a lot of attention to the elections, because both parties pull the same levers and play the same games so we are going to get amped up rhetoric. I think what’s important for the elections this year is really driven by the setup of the expiring tax cuts that expire at the end of 2025. I think if we end up in a gridlock, which is more than likely the case, then the path of least resistance will be that those tax cuts will expire. And that’s important because that’s a much higher corporate tax rate and could be important to risk assets moving forward. If we really have to deal with our fiscal deficits, and it becomes apparent that we’re going to have to, it may be the case that Congress says, “Look, we’re just going to let them expire. And we’re going to blame each other, blame the opposing party for it.”
François Collet, Deputy CIO - Portfolio manager – DNCA Investments: “We expect to see an increase in volatility against a backdrop of political uncertainty – especially as we head closer to the US election in November. Since the beginning of June, political events have generated the most volatility in financial markets. Budget revisions have often revealed larger deficits than previously anticipated, and election results create high levels of anxiety. The key thing, in our experience, that investors should be focused on in the lead up to the US election is flexibility.”
Patrick Artus, Senior Economic Advisor, Ossiam: “If Donald Trump is elected President of the US he has said he will put in place global tariffs on all imports to the US, whereas at the moment they only apply to Chinese imports. If this goes ahead it will be inflationary and negative for growth stocks and will mean higher short-term and long-term rates. If Kamala Harris is elected she intends to help US middle class families through tax cuts and other subsidies. This will increase public sector deficit which will mean higher long-term rates and is also negative for growth stocks. So, whoever is elected President in November we are likely to see a reduction in the value of growth stocks, through higher long-term rates, and support to value stocks as both candidates have said they will introduce policies which will help traditional industries like healthcare, housing and consumer goods and value stocks are mostly in these traditional sectors.”
David Bello CFA, Strategist, Mirova: “Corporate tax rate proposals are a key point of differentiation for financial markets. Kamala Harris is proposing an increase in corporation tax to 28% from the current rate of 21%, while Donald Trump is proposing a reduction to 15%*. A Donald Trump victory with a divided Congress could lead to higher tariffs and fewer migratory flows, without any significant tax cuts, creating a risk of mild stagflation. A D.Trump victory in both houses could lead to more tax cuts, more tariffs and less migration and would be clearly reflationary. A Kamala Harris victory with a divided Congress would not, on the face of it, bring about any major changes to the current situation A K.Harris victory in both houses would mean higher taxes on corporations and high earners, a tax on share buybacks and more fiscal stimulus for the most disadvantaged. Energy policies would also be very different, with a Harris victory leading to more 'green' investment.”
