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The US presidential election is one of the most closely followed political events in the world. Held every four years, it can have far-reaching effects across the global economy — given America’s status as a global superpower.
This year, the election will take place on November 5 and will see Republican and former president Donald Trump go up against Democrat and current Vice President Kamala Harris. Whoever is victorious will become an extremely powerful individual.
At present, it’s hard to know who is going to win the 2024 election. Currently, polls and betting markets are very tight. One thing that’s certain, however, is that the election is likely to have an impact on the world’s financial markets both before and after the event. With that in mind, here’s a look at how the event could shape the markets and impact your investment portfolio in the months and years ahead.
Expect volatility in the lead-up to the election
The first thing to be aware of as an investor is that the stock market could be volatile in the lead-up to the election. Markets don’t like uncertainty and there is always some uncertainty before an election, particularly if polls are tight and it’s difficult to determine who the winner will be.
The chart below shows the average monthly performance of the CBOE Volatility Index or “VIX” Index — a measure of market volatility — since 1990. In election years, markets tend to see a large spike in volatility in October, followed by a large drop in volatility in November. So, don’t be surprised if the markets experience some turbulence in the weeks ahead.
Don’t get too caught up in politics
Another thing to be aware of is that history shows that the stock market as a whole can generate strong returns for investors in the long run no matter which party is in power. Recently, the Bespoke Investment Group compared long-term US stock market returns when the Democrats were in power to returns when the Republicans were in power and what they found was eye-opening.
Going back 70 years, $1,000 invested in the S&P 500 Index only when the Republicans were in the White House would be worth $27,400 today. Meanwhile, $1,000 invested only when the Democrats were in power would be worth $61,800 today. However, $1,000 invested the whole time would now be worth roughly $1.7 million. The moral of the story here? Think long term and don’t get too distracted by short-term political noise.
The election result will impact industries and businesses
Of course, each political party has its own ideas for the future. So, the outcome of the election is likely to have implications for different sectors and areas of the economy. Below, we highlight the key details of each party's agenda. We also look at the types of stocks that could be impacted.
Bear in mind that while the US president has the power to pass some laws on their own, they often have to work with Congress to implement new legislation. And if one party controls the White House while the other controls one or both houses of Congress (this is called a “divided government”), new policies can be difficult to implement.
Democrats: key economic proposals and the potential market impact
In the lead-up to the 2024 election, Democrat nominee Kamala Harris has laid out a comprehensive agenda aimed at addressing issues such as soaring grocery prices, high healthcare costs, and housing affordability. Here’s a look at some areas of the market that could be impacted if she wins the election.
Consumer Goods
In an effort to combat rising grocery prices, Harris has proposed a national ban on “price gouging” (the practice of increasing the prices of goods to a level much higher than is considered reasonable or fair).
So, large grocery businesses such as Walmart and Kroger could potentially be looking at lower profit margins if she is the next president. Harris has also proposed heightened regulatory scrutiny of food producer and grocery mergers as well as more scrutiny of consumer goods companies involved in food production (particularly in meat supply chains) where price-fixing allegations have been raised. This could lead to a range of issues including disrupted food supply chains and less M&A activity in the sector (Mars recently made a bid for Kellanova and this deal could be heavily scrutinised).
Housing and Real Estate
Housing affordability is a major focus of the Harris campaign. Here, she has proposed tax breaks for homebuilders — with the goal of building three million new housing units in four years — as well as down-payment aid of up to $25,000 for first-time homebuyers in the US. These proposals could help homebuilding companies such as D.R. Horton, Lennar and PulteGroup as well as home improvement retailers such as Home Depot. They could also benefit real estate investment trusts (REITs) involved in affordable housing development.
Consumer Discretionary
Harris has proposed several measures that could provide families in the US with more disposable income, including the expansion of the Child Tax Credit and Earned Income Tax Credit and an increase to the minimum wage. If enacted, these measures could lead to a substantial increase in consumer spending across the country. This could have a positive effect on the consumer discretionary sector, with retailers such as Amazon, Target, and Costco potentially seeing more growth. It could also have a positive impact on companies in the travel industry such as Booking Holdings, Marriott, and Airbnb.
Healthcare and Pharmaceuticals
Healthcare is another key area of focus for Harris. Here, she has proposed capping insulin prices at $35 and out-of-pocket prescription drug costs at $2,000 per year. These measures could have a negative impact on some companies in the pharmaceutical sector such as diabetes specialist Eli Lilly (while potentially benefitting businesses that specialise in developing low-cost medications). Harris has also pledged to expand subsidies under the Affordable Care Act (ACA) and cancel medical debt. These measures could negatively affect health insurance companies such as UnitedHealth and Elevance Health (but potentially help the industry as a whole).
Renewable Energy
One area of the market that should benefit from a Harris victory is renewable energy. Under President Joe Biden, the US has made huge strides in the transition to clean energy. For example, a key achievement during Biden's term was the signing of the Inflation Reduction Act (IRA) — the largest climate spending bill in US history. Looking ahead, supportive policies on renewable power are likely to stay largely intact if Harris is elected president. This could support companies specialising in solar, wind, and other sustainable energy sources such as First Solar and Bloom Energy.
Democrats:opportunities and risks
To summarise, there are several areas of the market that could get a boost from a Harris victory. Sectors that could see the most benefit include homebuilding and real estate, consumer discretionary, and renewable energy. In terms of risks, two sectors that could face more scrutiny are consumer goods and oil and gas. Certain pharmaceutical stocks could also come under pressure.
It’s worth noting that Harris has proposed raising the US corporate tax rate from 21% to 28%. This tax increase, while beneficial for government revenue, could weigh on overall corporate profitability, leading to lower earnings for large corporations, especially those with substantial US-based profits. This is another risk to consider as it could limit near-term gains from the S&P 500.
Republicans: key economic proposals and the potential market impact
Over the last few years, Republican presidential candidate (and former US president) Donald Trump has put together a manifesto known as “Agenda 47.” This details policies that could be implemented upon his election as the 47th president of the United States and is very broad in nature, covering everything from national security to education. Here’s a look at some sectors that could be impacted if Trump wins the election.
Oil and Gas
Trump is pro oil and gas and he has proposed massively scaling up production if he is the next president. This could potentially lead to increased drilling activity, higher production volumes, and higher profits for companies in the industry such as Exxon-Mobil and Chevron. However, it is important to remember that the energy sector can be impacted by many different variables. Factors such as oil prices and operational setbacks can influence the performance of oil and gas stocks, regardless of who is occupying the White House.
Renewable Energy
In the past, Donald Trump has called climate change a “hoax,” and during his previous administration, he actually rolled back numerous environmental regulations. So, realistically, a Trump victory is not going to be good for the US renewable energy industry. In his Agenda 47 energy piece, Trump promised that the US will get out of the Paris Agreement (on climate change) if he wins. This could be a major setback for the country’s transition to clean energy.
Automotive and Electric Vehicles
Trump wants to revive America's traditional automotive industry, which has struggled in recent years. So, if he was elected president, it could help traditional automakers such as Ford and General Motors. However, Trump has proposed getting rid of President Joe Biden’s electric vehicle (EV) policies, vowing to end the EV mandate on day one. Therefore, a Trump victory could be a major roadblock to long-term EV growth.
Defence
The defence industry may get a boost if Donald Trump wins this election. In his previous stint as president, Trump increased military budgets and focused on modernising the US armed forces. If re-elected, he may continue this trend, which could support the revenues and stock prices of aerospace and defence contractors such as Lockheed Martin and Raytheon Technologies. However, investors should note that defence spending can be influenced by various factors including geopolitical events and congressional budget negotiations.
Shipping
In a bid to boost US manufacturing, Trump has proposed plans for blanket tariffs of 10 to 20% on virtually all imports as well as tariffs of 60 to 100% on goods imported from China. If these tariffs were to be implemented, they could send cargo rates soaring. When the Trump administration announced new tariffs in 2018, ocean container shipping market rates spiked more than 70%. That’s because the higher costs were passed on to shipping companies (before being passed on to consumers).
Banking
A Trump victory could unleash a new wave of deregulation, according to Goldman Sachs. And one industry that could benefit is financial services. Trump has said that if he wins, he plans to reduce the power of US financial regulators and free Wall Street from “burdensome regulations.” Therefore, a victory could help big banks such as JP Morgan, Citi, and Wells Fargo.
Semiconductors
In a recent interview, Trump suggested that he might upend America’s relationship with Taiwan — which produces a large proportion of the world’s most advanced computer chips today —– if he wins the election. Trump believes that Taiwan stole the US chip manufacturing business and that the country should pay the US for defence. So, if he were to win, there could be some implications for Taiwan Semiconductor Manufacturing Company (TSMC), which is a major supplier to mega-cap tech companies such as Apple and Nvidia. If a conflict were to arise between Taiwan and China, global chip supply chains could be disrupted like they were during the pandemic.
Republicans:opportunities and risks
To summarise, industries that could benefit from a Trump victory include oil and gas, defence, financials, and shipping. Areas of the market that are potentially at risk from a Trump win include renewable energy, electric vehicles, and some semiconductor companies.
Note that Trump has mentioned further reducing the corporate income tax rate in the US. Lower taxes could lead to higher profits for corporations, which in turn, could result in more dividends and share buybacks for investors.
How other financial assets could be impacted by the US election
Gold — Gold can potentially perform well regardless of which party is in the White House. Its value could continue to rise if Trump wins the election due to the fact that his policies are likely to create geopolitical tension and drive investors into safe-haven assets. On the other hand, a win for the Democrats could lead to lower inflation and interest rates in the US, which could also support the precious metal.
Oil — There is also the potential for oil to perform well irrespective of who is in power, however, more significant gains are usually seen under Republican presidencies due to policies favouring fossil fuel industries. Democratic policies are likely to focus more on renewable energy, resulting in lower gains for crude oil.
Crypto — Crypto may perform better under a Trump administration as the former president has recently embraced the asset class. Trump has pledged to create a strategic national Bitcoin stockpile. He has also vowed to make it easier for crypto mining companies to operate in the US.
US Treasuries — In the past, bond markets have generally remained stable under both parties. Looking ahead, bonds are more likely to be impacted by interest rate expectations than by the election outcome.
US dollar — Donald Trump has said that he would like to see a weaker US dollar in order to boost exports, but the greenback could gain in the event of his victory due to the fact that a second Trump administration may result in significant fiscal expansion and more economic growth. Meanwhile, a win by Kamala Harris could act as an obstacle to a strengthening dollar since Harris is likely to seek less fiscal expansion than Trump, which would bring less growth. Less adversarial trade policy by Harris could also diminish the need to hold safe-haven currencies. It’s worth pointing out that rising US debt will be an issue no matter who wins the election. Rising debt could have a negative impact on the dollar in the long run.
eToro’s new Smart Portfolios
Those looking to capitalise on US political activity may wish to check out eToro’s new DC-Insider and Congress-Buys Smart Portfolios.
DC-Insider tracks the performance of companies that spend a large amount of money on corporate lobbying, have a significant number of government contracts and are frequently traded by Congress members.
Congress-Buys, by contrast, tracks the performance of the top 10 stocks bought by Congress members (or their families) in the past 100 days based on the reported size of the purchase.
Both Smart Portfolios have been developed in partnership with Quiver Quantitative, which scrapes government disclosures to find out where government dollars are being allocated, who is spending money on political lobbying, and how US politicians are managing their own stock portfolios.
Note that these strategies are based on publicly available information. In the US, the Stock Act 2012 requires members of Congress to disclose their stock transactions. Meanwhile, the Lobbying Disclosure Act of 1995 requires lobbyists in the US to disclose information about their activities. As for official federal spending information, such as government contracts with public companies, this can be found on USASpending.gov.
