Publication date: August 23, 2024

Presidential election Nov. 5, 2024

On Nov. 5, the people of the United States may once again go to the polls to elect the new U.S. president. This seems far away but the influence of the election on the markets begins much earlier. This influence can occur at various stages of the election process. Today we also cover what possible influence both , Trump and Harris, can have on the markets.

In general, the uncertainty about who the new president will be and what policies they will implement plays the biggest role. In addition, the often big pronouncements of the candidates cause hefty stock market price movements.

Investors may therefore be reluctant to make large investments until there is more clarity about the outcome of the election.

Different candidates may have very different economic and fiscal plans, which affects investors. For example, a candidate proposing higher taxes or stricter regulations may cause declines in certain sectors.

The expectation of fiscal stimulus may have a positive impact on the market, as it may lead to higher spending and economic growth. On the other hand, if a candidate focuses on austerity and reduction of government debt, it can elicit negative reactions from investors.

Presidents affect trade agreements and relations with other countries. The expectation of tighter or looser trade policies can have a major impact on sectors that rely heavily on international trade.

There is a historical pattern indicating that the stock market often performs better in the final year of a presidential term, probably because of the stable political environment and the focus on economic policies that favor re-election. However, after the election, especially in the first year of a new president, the market may suffer from adjustments to new policies.

Direct market reactions can sometimes be exaggerated. While short-term volatility is common, markets tend to stabilize over the long term, depending on the actual implementation of policies and the broader economic context.

In general, presidential elections are important events for financial markets, and investors should take into account potential volatility and the impact of expected policy changes when making investment decisions.

The above are general issues for investors to consider. Perhaps more interesting is the impact on the stock market in the event of a Trump or Harris victory.

Donald Trump for president

For Trump, we can first look back to the past. During Donald Trump's previous term in office (January 2017 to January 2021), the U.S. stock market generally performed well, although there were some significant swings and challenges. In the coming term of office, we can expect the same kind of developments:

General rise: Stock markets in the United States experienced significant gains during Trump's tenure. The major stock market indexes, such as the S&P 500, Dow Jones and NASDAQ, reached record highs during this time. This was largely due to optimism about Trump's economic policies, including tax cuts for businesses and deregulation. America First!

Tax reform: The tax cuts enacted in late 2017, including a sharp reduction in the corporate tax rate from 35% to 21%, were positively received by the markets. This contributed to an increase in corporate profits and strengthened investor confidence.

Volatility and Trade Conflicts: Although markets generally rose, there were periods of increased volatility. In particular, the trade conflicts with China, which led to reciprocal tariff increases, created uncertainty in the markets. This resulted in swings and short-term declines, particularly in 2018 and 2019.

It was hopefully a one-time event but the breakout of COVID-19 in 2020 led to a sharp drop in equity markets in March 2020, when the Dow Jones experienced its largest one-day decline ever. However, thanks to massive stimulus measures by the U.S. government and the Federal Reserve, markets recovered relatively quickly. By the end of 2020, markets reached record highs again, even in the midst of the pandemic. This does indicate Trump's ability to deal with a serious crisis.

The S&P 500 rose about 67% from Trump's inauguration in January 2017 to January 2021. This is significantly above the multi-year average including the COVID-19 crisis. However, past performance gives an impression but certainly no guarantee of the future.

Below are some possible reactions and considerations to a Trump victory on Nov. 5, 2024: Positive reaction in specific sectors

Energy and fossil fuels: Trump has shown support for traditional energy sources such as oil and coal in the past. A Trump victory could lead to gains in shares of companies in the fossil fuel industry, as investors may expect a continuation of policies friendly to this sector.

Defense: Shares in the defense sector may also react positively, given Trump's previous focus on increasing military spending.

Corporate-friendly policy proposals: Trump has previously promoted tax cuts and deregulation, which may be beneficial to corporate profitability. This could lead to a rally in the stock market, especially in sectors such as technology, financial services, and manufacturing.

Expectation of continuity: Investors could see a Trump victory as a continuation of the policies implemented during his first term, which could lead to a sense of stability and confidence, especially if economic growth remains strong.

Trade wars and tariffs: A major factor that could cause uncertainty is Trump's approach to international trade policy. During his first term, he waged trade wars and increased tariffs, particularly with China. If investors expect Trump to continue or intensify this hard line, stocks in sectors dependent on international trade may react negatively. This could lead to volatility, especially in industries such as technology, agriculture, and manufacturing.

Impact on global markets: Global markets may also show negative reactions if they fear an escalating trade war, which could lead to economic slowdowns in other parts of the world.

Below is the chart of the S&P500 and the AEX during Trump's tenure.
America First. The US stock index is rising hard and Europe is partially benefiting.
In the event of a Trump victory, based on the past and his policies, investors should invest primarily in U.S. stocks.

 

The U.S. stock market generally performed well during Trump's presidency, with significant gains in major stock market indices, despite some periods of volatility due to trade conflicts and the impact of the COVID-19 pandemic. The specific reaction of the stock market will depend heavily on economic conditions at the time of the election, investors' perceptions about the likelihood of implementing Trump's policy plans, and the global economic and political context.

Kamala Harris for president

Kamala Harris is less well-known but seems far more capable of bringing victory to the Democrats than her predecessor Biden. At the time of writing, there is a 50% chance that Harris will still defeat Trump.

Here are some possible reactions and considerations to a Kamala Harris victory:

The mate of continuity with Biden: If Harris is seen as someone who will largely continue Joe Biden's policies, the market reaction may be limited to some degree of continuity. Investors could anticipate continued fiscal stimulus, infrastructure investment and focus on climate change, which could positively impact certain sectors.

Concerns about taxes and regulations: If Harris is known for supporting policies that include higher taxes on corporations and wealthy individuals, this could cause a negative market reaction, especially in sectors sensitive to tax burdens and regulation, such as technology and financial services.

Green Energy: As with the Biden administration, Harris would likely emphasize renewable energy and climate change. This could have a positive impact on stocks in the green energy sector, such as companies involved in solar and wind power, electric vehicles, and energy efficiency technologies.

Health care: Harris has advocated for an expansion of health care access in the past. Shares in the healthcare sector could react variably depending on specific policy proposals. Companies in the pharmaceutical and biotechnology sectors could experience volatility, especially if there is price regulation.

Labor Market: If Harris focuses on policies that promote higher minimum wages and strengthened labor rights, this could put pressure on corporate profitability, especially in sectors such as retail and hospitality. This could lead to a mixed market reaction, depending on how companies expect to absorb these costs.

Equity and Infrastructure: If Harris places a strong focus on infrastructure and equity investments, this could send positive signals to the market, especially for companies in the construction and engineering sectors. It could also lead to an increase in demand for products and services in areas that benefit from infrastructure investment.

Less confrontational trade policy: Unlike Trump, Harris is expected to take a less confrontational approach to international trade policy. This could reassure global markets and have a positive impact on sectors dependent on international trade, such as technology, manufacturing, and agriculture.

Strengthening alliances: A greater emphasis on international cooperation and alliances could also be beneficial to global markets, potentially stabilizing trade relations, which could reduce uncertainty in markets.

The S&P 500 rose by about 47% from Joe Biden's inauguration in January 2021 to date. This is also above the multi-year average. Again, past performance gives an impression but certainly no guarantee for the future.