Source: Zhitong Finance

The upcoming US presidential election is likely to add new variables to the 2024 market, and investors will evaluate possible changes in fiscal spending, taxation, and other policy areas after the election.

Over the past few months, the Federal Reserve's monetary policy trajectory and the US economy have been the focus of investors' attention. Market expectations that the Federal Reserve will cut interest rates in 2024 drove a sharp rise in the stock market at the end of 2023, bringing the S&P 500 index close to a record high.

Although the importance of these factors to asset prices is unlikely to diminish any time soon, as the Iowa caucus nomination process kicks off on Monday, an even rivaled rivalry and sharp partisan differences among voters may have brought an unexpected turn to the trend of the stock market this year.

In response, Erin Tucker, chief US stock market strategist at BCA Research, said, “The election brought an additional level of uncertainty.”

It is worth mentioning that this year's general election appears to be another confrontation between current US President Joe Biden (Democratic Party) and former US President Donald Trump (Republican Party). Trump is ahead of his Republican opponents.

However, a possible reduction in the Republican Party sector after the Iowa caucus meeting “will also make competition more intense,” Goldman Sachs economic analysts said on Monday that if Trump's lead narrows to between him and former South Carolina Governor Nikki Haley in the upcoming New Hampshire primary election, his lead will shrink to around 3%.

The bank's analysts said, “Uncertainty tends to rise as the presidential election year begins, and this pattern seems particularly likely to emerge in 2024.”

Historical data

According to information, presidents like Biden seeking re-election this year have always been accompanied by the higher-than-average performance of the US stock market in the past. Sam Stovall, chief investment strategist at CFRA, said that since World War II, the S&P 500 index has risen 14 times in the years the president sought re-election, with an average total return of 15.5% no matter who wins. In contrast, the index's average annual return for the same period was 12.8%.

Furthermore, Royal Bank of Canada Capital Markets (RBC Capital Markets) data shows that since 1928, the average increase in the S&P 500 index in the presidential election year was about 7.5%.

However, the seasonal pattern of the election year showed that the stock market was not always smooth sailing. Keith Lerner, co-chief investment officer of Truist Consulting Services, reviewed data from 1950 and said that the stock market often fluctuates around the first three months of an election year, and the S&P 500 index is usually flat. The three months before the election date in early November also tend to fluctuate.

Lori Carvassina, head of US stock market strategy at RBC, said that the seasonal pattern of the election year “really provided another reason for the first adjustment of the year.”

Tax and expenditure policies are also a focus

In addition to this, this year's tax and expenditure policies will also be the focus of investors' attention. During Trump's presidency, he implemented a series of tax breaks expected to expire in 2025, and the Republican Party is expected to try to prevent these relief from expiring.

According to the Oxford Institute of Economics, the Democratic Party and President Biden have implemented a broad law aimed at promoting clean energy and reducing the cost of prescription drugs. It is expected that they will seek to raise taxes on businesses and the wealthy while increasing spending on social safety nets, such as investment in childcare.

Matthew Miskin, co-chief investment strategist at John Hancock Investment Management, said that if there is a recession this year, the market's attention to the election may increase.

Miskin said, “If the economy starts to slow down and we may see a recession, then fiscal countermeasures and who becomes the political leader will become more important to the market.”

summed

As the election process progresses and policy proposals materialize, some areas of the stock market may become particularly volatile, including those relating to health-care costs, defense spending, or energy regulations.

For example, in the 2020 election, solar stock prices rose as Biden's election prospects improved. Trump's victory in 2016 triggered so-called re-inflationary trade, and loose fiscal policies are expected to drive growth in a range of industries.

However, some investors still doubt that the election will have a lasting impact on the market. One factor that may slow the impact is that the market expects Congress to split after the election, limiting the possibility of more aggressive policy changes.

Jack Janasevich, investment manager at Natixis Investment Management Solutions, said: “While the election may bring some fluctuations, the most important macro theme is where we are in the economic cycle.”

Editor/Jeffrey