Larry Fink Says the US Election is Irrelevant for Financial Markets

Let’s get this out of the way early—Larry Fink is brilliant. If I were to apply for a job at BlackRock and my resume were to land on his desk, it would likely end up in the garbage. While I am an admirer, I disagree with a recent claim he made concerning the upcoming 2024 Presidential Election.

Larry Fink is CEO of BlackRock and one of the most influential figures in global finance. He recently made a bold claim that the outcome of the 2024 U.S. presidential election is irrelevant for financial markets. His reasoning hinges on the belief that structural economic forces—such as technological advancements, demographic shifts, and global trade dynamics—far outweigh the importance of any single election. While this argument holds some merit, dismissing the political landscape as inconsequential is overly simplistic. In reality, the policies that emerge from a presidential election can have profound implications for financial markets, especially in an era where the government plays an outsized role in the economy.

The Policy Impact on Financial Markets

Fink’s argument may resonate with those who view markets as largely efficient and resilient, but it overlooks how policy changes, particularly in key areas like taxation, regulation, and government spending, can affect corporate earnings, market sentiment, and long-term economic growth.

For instance, the difference in tax policy between a Republican and a Democratic administration can be stark. In recent history, Republican administrations have favored lower corporate and capital gains taxes, which can boost after-tax profits and increase the attractiveness of equities. Conversely, Democratic administrations have leaned toward raising taxes on high-income individuals and corporations to fund social programs, which may exert downward pressure on stock prices and corporate investment. The 2017 Tax Cuts and Jobs Act, enacted under President Trump, is a case in point: it slashed the corporate tax rate from 35% to 21%, leading to a surge in stock buybacks and corporate investment, which buoyed financial markets. By contrast, President Biden’s proposals to increase corporate taxes have contributed to market uncertainty, particularly in sectors with high tax exposure, like technology and pharmaceuticals.

Moreover, regulatory policies can significantly affect specific sectors. The energy sector, for example, is highly sensitive to environmental regulations. A Democratic president is more likely to implement stricter environmental regulations or accelerate the transition to renewable energy, which could disrupt traditional energy industries. On the other hand, a Republican administration might roll back such regulations, benefiting oil and gas companies. Financial services, healthcare, and technology are other sectors where regulation—or the lack thereof—plays a critical role in shaping market outcomes. Under Biden, for instance, there’s been an increased emphasis on antitrust enforcement, which has rattled big tech stocks. Such regulatory shifts are not easily shrugged off by investors.

The Debt and Fiscal Policy Factor

One of the most pressing economic issues of the next decade will be how the U.S. government handles its ballooning national debt, which now exceeds $33 trillion. Both parties pay lip service to fiscal responsibility, but their approaches to addressing the debt are vastly different. A Republican administration is more likely to advocate for spending cuts—especially in entitlement programs like Social Security and Medicare—whereas a Democratic administration might focus on increasing revenue through higher taxes. This divide is crucial because how the government addresses the debt will affect interest rates, inflation, and long-term economic growth, all of which are critical to financial markets.

During the Obama administration, for example, the Republicans’ focus on austerity measures in the wake of the 2008 financial crisis led to significant cuts in government spending, which many economists argue slowed the recovery. Conversely, under Trump, the combination of tax cuts and increased military spending added to the deficit but provided a short-term boost to GDP growth. Biden has prioritized large-scale public investments, such as the Infrastructure Investment and Jobs Act, which has provided a temporary economic boost but exacerbated concerns about long-term fiscal sustainability.

Fink’s dismissal of the election’s impact on markets fails to recognize how different fiscal strategies can affect everything from interest rates to inflation expectations. If markets begin to price in higher inflation or expect a more hawkish Federal Reserve response due to rising deficits, we could see significant volatility in bond markets and interest-rate sensitive sectors like real estate and utilities.

Trade and Foreign Policy

Another critical area where presidential elections matter is trade and foreign policy. The U.S. economy and its financial markets are deeply intertwined with global markets, and presidential leadership plays a pivotal role in shaping international economic relations. Under Trump, for example, we saw a more protectionist trade policy, including tariffs on Chinese imports and a renegotiation of NAFTA. These policies had profound effects on industries like manufacturing, agriculture, and tech, leading to market volatility and sectoral shifts. Conversely, Biden has pursued a more multilateral approach, although he has largely maintained a tough stance on China.

The next U.S. president will face a complex global environment, with the rise of China, ongoing tensions with Russia, and shifting alliances in the Middle East. Trade policy, tariffs, and international diplomacy will influence corporate profits, particularly for multinational companies. Investors may see sectors like defense, technology, and energy affected by foreign policy choices, and these decisions could have ripple effects throughout the broader market.

Market Sentiment and Investor Psychology

Finally, Fink’s assertion underestimates the role of market sentiment and investor psychology. Markets are not purely driven by fundamentals; they are also swayed by perceptions and expectations. Presidential elections, especially in today’s polarized environment, have an outsized impact on market sentiment. Uncertainty around election outcomes can lead to heightened volatility, as seen in the lead-up to the 2020 election when markets experienced significant swings amid concerns over the potential for a contested result.

Investors often respond to who is in power and the anticipated policy direction. A Republican win might prompt rallies in sectors like defense, energy, and financials, while a Democratic win could lead to gains in renewable energy, healthcare, and tech due to expectations of favorable regulatory environments or increased public investment. Markets may also react to changes in the Federal Reserve’s leadership, which is often influenced by the president’s appointments to key positions. The Fed’s monetary policy decisions directly affect interest rates, inflation, and liquidity, all of which are crucial for asset prices.

Conclusion

While Larry Fink’s argument that markets are driven more by structural forces than election outcomes has some validity, it is shortsighted to claim that presidential elections are irrelevant for financial markets. The policies that stem from an election—whether on taxation, regulation, fiscal management, or trade—can significantly influence corporate profits, market sentiment, and long-term economic growth. Investors ignore these political dynamics at their peril. Presidential elections may not entirely dictate market performance, but they certainly help shape the environment in which businesses operate and markets function. For these reasons, the outcome of the 2024 election will matter for financial markets, and investors should pay close attention to its results.