Why the 2024 US presidential election matters for the markets
With the US presidential election approaching fast, everyone is wondering — how will a potential victory by either Donald Trump or Kamala Harris affect the financial markets? Before we explore the possible outcomes, we should first ask an even more important question: do elections in the US historically impact the markets?
In the short term, US presidential elections create plenty of volatility and uncertainty — this became particularly evident during the last two elections. However, in the long term, the impact of the election is rather limited, as neither party is looking to change how the United States functions as a state drastically. For an election to have a significant long-term impact, it would take an unpredictable president who is looking to implement radical changes. This scenario, however, is unlikely with the current bipartisan system.
That being said, the short-term impact on markets can be significant, particularly as market participants try to decipher what a win by a specific candidate would mean for the broader market as well as for particular sectors. For instance, the wide US stock market would perceive a reduction in the corporate tax rate as beneficial. A second example would be a president announcing significant investments in renewable energies, which would boost stocks in that sector.
What do the polls show?
For months, polling data showed that Trump was widening his lead against Biden. On July 21st, President Biden announced that he would end his re-election bid and endorsed Vice President Kamala Harris to succeed him as the Democratic candidate, which she eventually did. Initially, polls were hinting at a close race between the two candidates. On September 10, Donald Trump and Kamala Harris met for the first time at a debate, where it appeared that Harris came out on top, potentially widening the gap between the two candidates. Harris’ team has challenged Trump to a second debate, but it remains to be seen if this will occur.
Key events to look out for
- TBA: Second Trump-Harris Debate (unconfirmed)
- 01.10.2024: CBS vice presidential debate
- 05.11.2024: Election day
- 25.01.2025: 2025 United States presidential inauguration
How would a Trump win affect financial markets?
It is expected that Trump would look to raise US tariffs on imports should he become president again — particularly from China, which could be hit hard with a tariff of up to 60%. The Chinese economy has been struggling in the past few years, and therefore this move could hurt the country’s prospects for a recovery.
The impact of heavier US tariffs would not only be limited to Chinese markets. While Chinese equities would be heavily affected, the implications would be felt worldwide. China is an important market for large multinational companies. For example, Apple sells iPhones, German carmakers such as Volkswagen and Mercedes-Benz sell cars, and French fashion houses such as Hermes and LVMH sell their luxury products.
Large exporters of goods to China, such as Australia and Brazil, would also face significant impacts. A large share of Australia’s iron ore, natural gas, and gold exports are going to China. Meanwhile, Brazil is supplying the country with large quantities of soybeans, iron ore, and crude petroleum. Weakening demand could weigh on the Australian dollar and the Brazilian real.
Rising concerns about a trade war could lead to risk aversion, negatively impacting stock markets across the globe, and leading to a temporary flight to safe-haven assets, like gold and defensive stocks, for example. What impact would this have on the US dollar? It would likely appreciate in the near term as Trump’s policies could lead to a renewed rise in inflation, which would put the Fed’s planned rate cuts in jeopardy. Trump will be looking to maintain or even expand the 2017 tax cuts, and a rising deficit would be another factor that could give the greenback a boot.
When it comes to energy, Trump has made his views very clear. He wants the US to have the cheapest energy in the world and promises more oil drilling on public lands, tax breaks to the oil industry, and a faster approval process for natural gas pipelines. He also called Biden’s policies a "green new scam" and will try to undo much of it. A Trump win could give oil and natural gas companies like Exxon, for example, a major boost while putting renewable energy stocks under pressure.
What would a Kamala Harris win mean for markets?
Kamala Harris’ planned trade policy is less clear, but markets feel confident that it would be less erratic than Trump’s, and in the worst-case scenario, she might espouse Biden’s policies, which were restrictive, but not in a drastic way. Or Harris might surprise markets and look to boost global trade, as Obama did before.
This would be bad for the US dollar but would boost risk appetite and global equity markets. Asian stocks in particular would benefit, as would risk currencies such as the Australian and New Zealand dollar.
Harris expressed strong concern over offshore drilling and fracking in 2020 and said that she would ban oil and gas leases on public lands if she became president. However, in a more recent interview, Harris backtracked on this and now claims she would not ban fracking. While she is likely to continue Biden's climate policies, Harris may not take as harsh a stance on the oil and gas industry as initially thought, which could limit oil stock losses while renewable energy companies benefit.
How about taxes? If elected president, Harris would look to raise the corporate tax and increase the tax burden on the wealthy while easing it for America's poorest. While this would be negative news for the broader US stock market, market participants are not panicking yet, as Harris would face significant obstacles, especially if Congress is divided or under Republican control.
Conclusion
In conclusion, a Trump win could trigger a new trade war, which could have wide implications for global financial markets. Trump’s policies could have a positive impact on the US dollar, and a rise in inflation could put the Fed’s rate-cut plans in jeopardy. Uncertainty would increase, leading to more frequent risk-off phases.
On the other hand, a Harris win would likely be met with initial optimism on the stock market, as she appears to be more predictable. A planned rise in the corporate tax rate might rattle investors, but Harris would face plenty of hurdles to implement those.
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