The 2024 US presidential election voting day is getting closer. In the final intense stage, the propaganda competition between the two party candidates, expectations of victory or defeat, has become information that the market cannot ignore, also driving the attention-grabbing 'Trump trade'.

In fact, after the Fed initiated a rate-cutting cycle, the US presidential election has become the most significant financial event of 2024, an important influencing variable on the pricing of global assets. The unquestioned positioning of the USA as the core of the global economy, along with different domestic and foreign policies towards China, all have significant impacts on various asset sectors. The author will focus on its impact on the capital markets and provide a brief analysis of the upcoming election results.

Of course, the factors influencing the election results are often complex and variable, inevitably involving some more obscure topics. Both the author and the market can only analyze this based on surface-level possibilities. The market carries risks, and investments must be made cautiously.

01 Short-term focus on the outcome, the winner is still unknown.

From a short-term perspective, the current election trend has more favor towards the Republican candidate, Donald Trump, winning. Due to each party having its own biased media, there is a possibility of distortion in the polls. Therefore, the most recognized reference data currently comes from the betting platform Polymarket. As of October 28th, Trump's odds on Polymarket have reached 65.9%, while the corresponding odds for the Democratic candidate, Kamala Harris, are only 34.2%.

Certainly, according to the official election data from RealClearPolling polls, the two-party candidates are still in a 'fifty-fifty' state, with Trump and Harris having election probabilities of 48.6% and 48.4% respectively, a difference that is essentially negligible. However, in the swing states that will determine the outcome of the election, Trump's polling trend after October has clearly surpassed Harris, taking the favorable range. If the official election voting follows the trend mentioned above, Trump has a high probability of becoming the next US president.

Investigation indicates that the recent hurricane attacks in the USA may be the reason for the increase in Trump's odds since October. Against the backdrop of the severe impact of the hurricanes, the current Democratic administration under Biden's governance has performed poorly in disaster relief matters, leading to a decrease in trust among the American people for the Democratic party. As a Democratic candidate and a member of the current Biden administration, Harris finds it challenging to distance herself from this issue.

Secondly, Harris is ultimately a candidate who changes leadership during a crisis. The U.S. presidential election spans a year, with multiple key election nodes and corresponding media campaigns being crucial in the presidential election process. Leading up to the 2024 U.S. presidential election mid-term, the Democratic Party's presidential candidate has been the current U.S. President Joe. Biden. The impact of changing leadership during a crisis is difficult to eliminate. Although short-term momentum may be achieved through media campaigns, over time Harris' impression on the people remains somewhat pale, with natural flaws in the candidate team's preparation.

In anticipation of Trump's victory, the current market trend of implementing the 'Trump trade' is becoming more evident. The isolationist and conservative 'MAGA' favors domestic assets. Referring to the market performance during the Trump administration from 2016-2020, U.S. stocks strengthened under a tax reduction environment, the U.S. dollar correspondingly weakened, and the direction of major asset classes is subject to fluctuations due to changes in midterm policy directions, but overall tends to be passive. With the backdrop of a strong U.S. stock market, emerging market asset prices lack funding support. The above situations have already been reflected in the recent market's preemptive reactions.

Of course, before the election results are final, no one knows how it will turn out. Putting aside gambling data, the gap between the two candidates is actually very small. Including the swing states where Trump is leading, as of October 28, the largest lead in any state is only 1.8%. Due to the mechanism of mail-in ballots, the electoral votes seen currently are not accurate. In the final days, Trump's advantage in swing states could completely reverse.

Therefore, in the author's view, it is important to note the risk of 'Trump losing'. Firstly, the premature impact of the 'Trump trade' may backfire, leading to a possible downturn in the recent bullish U.S. stock market. Secondly, attention is needed towards potential voter doubts Trump might raise and the standoff between the two parties, which could bring about unexpected market risks. Similar situations occurred in 2020, and in 2024, these risks still need to be monitored.

02 Mid-term Policy Focus, How Different are the Two Parties?

After overcoming short-term impacts, the changes brought by the U.S. presidential election mainly lie in the policy styles of different leaders. Taking Trump as an example, during his 2016-2020 term, the trade war between the U.S. and China dominated various market trends in China, the impact of tariffs on export business, leading to the rise of domestic substitution concepts and even forming significant direction in the real economy industry. Therefore, from a midterm perspective, the policy agenda of presidential candidates needs attention.

Comparing the policy propositions of the two party candidates, Trump and Harris, it can be seen that there are significant differences in their positions on welfare, trade, diplomacy, immigration, and energy issues. In terms of economic aspects, Trump has mentioned a 10% comprehensive tariff and 60% trade tariffs on Chinese products, displaying his isolationist and conservative style. On the issue of tariffs, Harris appears more restrained, though expressing views on China, she also suggests that imposing tariffs indirectly increases the tax burden on U.S. domestic income.

Looking at the domestic policy direction in the U.S., both parties have prominently retained their own characteristics. The Republican Party supports traditional energy, advocates tax cuts, and revokes clean energy subsidy policies. Harris advocates taxing large corporations, reducing taxes for the working class, focusing on green renewable energy, and financial subsidies for the chip industry. It is evident that under the influence of different leaders, the benefits for various industries in the U.S. will obviously vary.

In general, Harris's policies actually tend to continue the established policy direction of the Biden administration period, even though the presidential candidate has changed, but the same party in power represents limited policy changes. If Harris successfully runs for president, the mid-term impact on the market may lean towards neutral, having an impact but not significant. On the other hand, Trump's policies are more radical, with a more pronounced impact on the market, which is why the current market is mainly driving the 'Trump trade'.

Based on the current election trends, assuming Trump ultimately wins. The policy propositions of 'imposing tariffs, cutting taxes domestically, strict immigration control, and guiding manufacturing back' may become a boost to the upward trend of domestic inflation in the United States. For the U.S. market that has just started an interest rate reduction cycle, this could be a catalyst for conflicting points. Market concerns about 'reinflation' may increase, and the pace of future market interest rate cuts may also slow down.

03 Long-term return to fundamentals, seeking a balance point between inflation and interest rate cuts

It should be pointed out that the U.S. presidential election is not something new, but a 'routine item' held every four years. Therefore, if we look at investments from a longer time frame, the change of president is just a variable in the U.S. economy, and the ultimate factors determining the influence of the U.S. economy still lie in various fundamentals, as well as longer-term interest rate impacts, with the impact of elections on the market being reflected through changes in fundamentals.

On October 31, the U.S. Department of Commerce's Bureau of Economic Analysis released data showing that the annualized quarter-on-quarter GDP growth rate in the third quarter of 2024 was 2.8%, a decrease of 0.2 percentage points from the previous quarter, with the actual GDP year-on-year growth rate falling to 2.7%, lower than the market's expected 3.1%. This is also the first time this indicator has fallen below market expectations since the third quarter of 2023. It can be seen that the downward economic cycle continues to affect the U.S. economy, with the 'landing' of its fundamentals still in progress.

Breaking down the data for the third quarter, the U.S. consumer market performed strongly. Automotive consumption provided significant support to the data, while the contribution of non-durable goods such as pharmaceuticals, which had previously shown mediocre performance, also saw marked improvement. It is evident that against the backdrop of the interest rate reduction cycle in the U.S., the transformation of credit conditions in the U.S. consumer market has supported consumption. Driven by consumption, the Fed's inflation data for the third quarter also slightly exceeded expectations. The core Personal Consumption Expenditure (PCE) price index rose by 2.2% annually in the third quarter, narrowing by 0.6 percentage points from the second quarter but slightly higher than the market's expected 2.1%.

Looking at the previously released September non-farm payroll data, the current labor market in the U.S. shows a cooling trend. Despite the highest increase in new non-farm employment since March 2024 in September, in the long term, new non-farm employment is still on the decline. At the same time, the unemployment rate rose to 4.1% in September, slightly higher than at the beginning of 2024.

As mentioned in recent analyses, the focus of the Fed has shifted from stabilizing inflation to stabilizing employment. Although the third-quarter inflation data and economic data both fell short of expectations, to some extent affecting the expectations of interest rate cuts, the expectation for a rate cut in November is still maintained at a 25 basis point level. However, with the accumulation of influencing factors and the potential post-election turmoil, there are doubts about whether the Fed's interest rate reduction cycle can proceed at the established pace.

Overall, the US economy is currently on a steady landing trajectory, with a slowdown but not too rapid decline. This process may be completed during the next presidential term, and the impact from the economic cycle may still be more powerful than the president's policy in the trend over the next four years.

Editor/Somer