US Elections 2024: Investment Implications

Election Overview and Market Sentiment

The 2024 U.S. presidential election is shaping up to be one of the most consequential for financial markets in recent years, with potential implications for over $100 trillion in global asset valuations and market stability. As former President Donald Trump and Vice President Kamala Harris battle for the Oval Office, their contrasting platforms provide a critical lens through which investors can assess the potential impact on the economy and various asset classes. This article will explore key policy proposals, market reactions, and investment implications for both potential outcomes.

The 2024 U.S. presidential election is shaping up to be one of the most consequential for financial markets in recent years, with potential implications for over $100 trillion in global asset valuations and market stability."

The Odds

Betting markets have seen a shift in sentiment towards Trump, largely due to increased enthusiasm among his base and skepticism regarding polling data—a pattern reminiscent of the 2016 and 2020 elections, where polls underestimated Trump's support among certain voter groups. For instance, as of October 2024, betting platform Betfair has seen Trump's odds improve significantly, with his probability of winning rising from 35% to 45% over the past month, reflecting heightened confidence among his supporters despite polling uncertainties.

As of October 29, 2024, an aggregate analysis of major betting platforms and prediction markets indicates that Donald Trump holds a 62.28% probability of winning the 2024 U.S. presidential election, compared to Kamala Harris's 37.04% probability. This assessment synthesizes data from multiple reputable sources in the political forecasting domain.

(The sum of these probabilities (99.32%) is slightly less than 100% due to rounding and the fact that some markets may include other candidates or undecided options.)

However, even with this momentum, according to the traditional polls, both candidates are locked in a dead heat across the battleground states, which will determine the outcome of the election.

Betting markets have seen a shift in sentiment towards Trump, with his probability of winning rising from 35% to 45% over the past month, reflecting heightened confidence among his supporters.

Policy Proposals: Contrasting Visions

Taxation and Fiscal Policy

Harris proposes increasing corporate taxes from 21% to 28% and raising capital gains taxes for high-income individuals to fund social programs like child tax credits and housing incentives. In contrast, Trump aims to extend the Tax Cuts and Jobs Act (TCJA), reduce corporate taxes to 15%, and eliminate certain personal taxes, favoring high-income earners and promoting growth through tax relief. While Harris' plan seeks to address income inequality, it may weigh on corporate profits; Trump’s tax cuts, however, could lead to larger deficits.

Trade and Foreign Policy

Harris continues Biden's approach with targeted tariffs, aiming to support domestic manufacturing through policies like the CHIPS Act. Trump, on the other hand, proposes sweeping 60% tariffs on Chinese imports and broader protectionist measures, which could boost U.S. industries but lead to higher consumer prices and risks of retaliatory trade actions.

Technology and Regulation

Harris plans stronger regulations on Big Tech, focusing on privacy, data security, and misinformation, while also supporting technology innovation in AI and biotechnology. Trump, in contrast, favors lighter regulations to encourage business growth and foster innovation, creating a more business-friendly landscape for startups and established tech firms.

Immigration

Harris supports pathways to legal status for undocumented immigrants, aiming to sustain workforce growth, especially in sectors like agriculture and construction. Trump focuses on stricter immigration policies, including deportation, which could lead to labor shortages and increased wage inflation, particularly in industries reliant on immigrant labor.

Climate and Energy Policy

Harris focuses on clean energy initiatives, including investments in renewable energy and emissions reduction, and plans to rejoin international climate agreements. Trump, however, seeks to boost fossil fuel production by reducing regulations, supporting coal, oil, and gas industries. Harris' approach could benefit renewable energy sectors, while Trump's plan aims to strengthen energy independence but at the potential cost of environmental setbacks.

Healthcare

Harris advocates for expanding healthcare through a public option, extending the Affordable Care Act (ACA), and reducing prescription drug costs, aiming for broader access and affordability. Trump, in contrast, wants to repeal the ACA, reduce government involvement in healthcare, and promote Health Savings Accounts (HSAs), leading to greater reliance on private insurance and potentially higher costs for some individuals.

Social Programs and Education

Harris aims to expand social safety nets, including increased child tax credits and free community college, to reduce economic inequality. Trump emphasizes school choice, promoting charter schools and reducing federal involvement in education. Harris’ policies could enhance access to education and social services, while Trump’s focus is on providing market-driven education options, favoring privatization.

Market Implications

Equities

Equity markets have already responded to the unfolding election cycle. Historically, sectors such as financials, energy, and industrials have reacted positively to Trump's deregulation and tax cut promises. For example, following the 2016 election, the S&P 500 Financials Index gained over 20% in the first year of Trump's presidency, driven by expectations of reduced regulation and corporate tax cuts. Should Trump win, markets could experience a short-term rally, particularly in small caps and sectors like banking that benefit from deregulation. However, fears of rising inflation and trade tensions could create headwinds in the longer term.

Historically, sectors such as financials, energy, and industrials have reacted positively to Trump's deregulation.

For Harris, the implications are more nuanced. While higher corporate taxes could weigh on corporate profitability, sectors like renewable energy, infrastructure, and technology could benefit from increased government spending. Investors should expect a mixed reaction, with green initiatives likely boosting specific sectors, even as broader market sentiment remains cautious due to higher taxes.

Fixed Income and Currency Markets

The fixed-income markets are likely to be influenced by fiscal policy stances and inflation expectations. Under Trump, higher deficits and aggressive tariff policies are expected to push yields higher as the risk of inflation grows. Harris' proposals, while also deficit-expanding, are seen as less extreme, potentially leading to a more stable bond market. Her focus on targeted spending and maintaining a balanced fiscal approach may help keep borrowing costs in check, thereby reducing the risk of runaway inflation and ensuring greater stability in bond yields.

A Trump presidency is expected to lead to higher bond yields due to increased deficit spending and inflation risks from aggressive trade policies. In contrast, Harris' more balanced fiscal approach and targeted spending proposals are anticipated to result in a more stable bond market with potentially lower borrowing costs.

Currency markets are similarly poised for volatility, with a Trump victory likely boosting the dollar in the short term due to perceived policy divergence, but creating long-term risks associated with inflation and trade uncertainty. Harris, on the other hand, may maintain a more neutral dollar outlook.

Crypto Assets

The regulatory environment for crypto assets could see significant changes depending on the election outcome. Harris is likely to maintain or expand regulatory oversight, focusing on consumer protections and anti-money laundering measures. Trump, by contrast, may favor a lighter regulatory approach to foster innovation in the crypto sector, potentially allowing for faster growth but with increased risks. Crypto markets may react with volatility in anticipation of policy shifts.

Real Estate

The real estate market could be impacted by the different fiscal policies of each candidate. Harris' tax increases may lead to reduced disposable income, dampening demand for residential properties, while her focus on affordable housing could benefit the lower-income housing sector. Trump's tax cuts and deregulation could boost investment in commercial properties, benefiting developers and investors looking for fewer restrictions.

Commodities

Harris' green energy initiatives are likely to increase demand for metals like copper and lithium, essential for renewable energy projects and electric vehicles. Trump's focus on traditional energy sources, such as oil and gas, may benefit fossil fuel commodities, impacting broader commodity markets.

Infrastructure Investments

Harris is expected to prioritize green infrastructure projects, which could boost sectors related to renewable energy and sustainability. Trump, in contrast, may emphasize traditional infrastructure, like roads, bridges, and pipelines, supporting investments in construction and heavy machinery.

Private Equity and Venture Capital

Harris' proposed regulations and higher taxes could impact venture capital inflows, particularly for high-growth startups. On the other hand, Trump’s lighter regulatory approach and lower taxes could encourage more private equity and venture capital investments, particularly in tech and energy sectors.

Investment Strategies: Navigating Uncertainty

As the election approaches, investors are advised to focus on diversification and tactical opportunities. Despite the potential for volatility, historical evidence suggests that markets eventually refocus on fundamentals like earnings, cash flow, and broader economic trends rather than political outcomes alone. With both candidates presenting vastly different policy paths, sectoral positioning and risk management will be key.

In scenarios of heightened uncertainty, investors might consider increased exposure to defensive sectors like healthcare and utilities, as well as assets that hedge against inflation such as commodities and inflation-linked bonds. A balanced portfolio that incorporates these elements could help manage the risks associated with this election cycle, while also capturing upside opportunities in sectors that stand to benefit from either candidate’s policies.

Long-Term Investment Principles that Are Applicable During Election Volatility

Elections often introduce short-term market volatility, but investors should maintain a long-term perspective. Here are some key strategies to help navigate the election cycle without compromising long-term goals:

• Time in the Market, Not Timing the Market: Avoid trying to time the market based on election news. Historical data shows that staying invested through ups and downs yields better long-term results.
• Focus on Quality Investments: Prioritize high-quality investments—companies with strong balance sheets and reliable earnings—which tend to be more resilient during periods of uncertainty.
• Dollar-Cost Averaging: Continue investing regularly, regardless of market conditions. This strategy can help smooth out price volatility and prevent emotional decision-making during election-driven swings.
• Risk Assessment and Liquidity: Reassess your risk tolerance but avoid drastic changes. Maintain enough liquidity to meet short-term needs without having to sell assets during unfavorable conditions.
• Sectoral Opportunities: Identify sectors that might benefit regardless of the election outcome—such as healthcare, infrastructure, and technology—to take advantage of long-term growth opportunities.

A disciplined, long-term approach helps investors ride out the volatility associated with election cycles and ensures portfolios are aligned with fundamental goals.

Conclusion

The 2024 U.S. election presents a significant fork in the road for the U.S. economy, with each candidate offering distinct visions for the country's future. While Trump’s tax cuts and deregulatory agenda might boost short-term growth, they come with long-term fiscal risks. Harris’ policies, by contrast, focus on social equity and green investment but could face challenges from a divided Congress. Key takeaways for investors include:

• Preparing for potential market volatility
• Balancing short-term opportunities with long-term risk management
• Focusing on defensive sectors and inflation-hedging assets
• Building resilient portfolios that emphasize both tactical agility and adherence to long-term fundamentals will be crucial for navigating the uncertainties of this election cycle.