Ritika's Top Picks: Markets in an Election Year

As the November US Presidential election nears, investors are likely to be paying close attention to the potential ramifications of the election for businesses, capital markets and the economy.

In this week’s Top Picks, we'll hear from Joe Davis, CFP? from Stonebriar Wealth Management LLC on historical returns in election years and Michael Reinking, CFA , NYSE Senior Market Strategist on specific policies investors may be watching out for.

Firstly, while the stock market historically hasn't responded all that dramatically to past presidential elections, Joe Davis from Stonebriar Wealth Management has some optimism for 2024:

“What I do want clients to know is that this is the fourth best start to an election year in 100 years. So 2024 is pretty remarkable. And what the data shows us and what history tells us is that when the first six months of a year of an election year are strong, the majority of the time and the next following seven months, it's also very positive as well. So of all the noise out there, we seem to be in a pretty good position historically.”

Next, we discuss the policies that investors should be watching out for. Stonebriar Wealth Management's Davis says trade with emerging market players will be a key theme. regardless of candidate:

“I think we can all agree that the two presidential candidates are starkly different individuals. If you had to drop a Venn diagram, the little area of intersection would be tough trading stance on China. Both candidates have mentioned this and it's been evidenced in both of their platforms. Look, China was the number one trading partner in the United States for almost a decade, but that actually changed in 2023. So there's this new concept of friend shoring or near shoring and it's working with countries close to you and becoming better trade partners. Mexico is now the number one trade partner in the US. So very skilled workforce, numerous Fortune 500 companies invest there. So really, whoever ends up winning the election in November, you might expect a nice tailwind from an emerging market fund that has a little bit more Mexico because right now, the majority of funds are overweight China and that could be a headwind for some investors.”

Michael Reinking, NYSE senior market strategist adds that the recent debate between President Joe Biden and presumptive Republican presidential nominee Donald Trump has already started to impact the bond market:

“Following the debates on Thursday, we've seen yields starting to move higher despite inflation data that's actually been pretty benign, right? So we had PCE that came in line with expectations. And then on Monday's ISM manufacturing, the prices paid fell pretty significantly. But we've seen rates moving higher. Markets are starting to increase the potential probability of a Trump presidency, right? And so, you know, there's a focus on, you know, if there is a red wave, right, there is a focus on fiscal deficits are very much back in the conversation. Inflation with tariffs, right? It's a very it, you know, is also kind of a key point that markets are starting to focus on.”

Finally, Afsaneh Mastouri , Head of Fixed Income Solutions Research at MSCI Inc. , says that they forecast that the public debt to GDP will grow from 96% to around 115% by the end of the decade. But how we get there will be very different between Republican Democrats:

“Democrats tend to be on the increase of the physical deficit by increasing the Spending. Republican are on the tax side. The effects on market could be quite different. I think one of the uncertainties for the market is not just on the on the fiscal policies, so on how each of these kind of two group of candidates or two policy makers, family policy makers might react to or might impose further tariffs to the US trade partners, specifically in case of China. So those aspects related to the trade is introducing further uncertainty, which is not necessarily directly related to the fiscal policy.”