This year the polls will be smoking hot. In 2024, 3.7 billion people in 70 countries will be called to vote. At the beginning of June, elections will take place in the European Union to determine the composition of the Community Parliament. During 2024, new governments will also be elected in India, Pakistan, Brazil, Mexico, Belgium and Bulgaria. Appointments with the well-known “Party of Democracy” are piling up, but if you stand out from the rest, it will be your turn to choose the next tenant of the White House. The US presidential election will take place on Tuesday, November 5th. By then they will be on everyone's lips for one reason or another. Until June, as states and political parties hold primaries and their caucuses. July through early September, as both Democrats and Republicans hold their national conventions to elect their candidates. And later, because it will be the turn of the debates between the presidential candidates, which, if there is no surprise, will be the current President Joe Biden and his predecessor Donald Trump.
How will election uncertainty surrounding the world's leading economy affect markets? The experts at the management company Panza Capital warn that both Wall Street and the stock market face “months of noise” “due to the importance of the United States in the financial world.” From JP Morgan Private Bank they recall that election years “tend to be more volatile than others, especially in the period leading up to Election Day”. Schroders and Capital Group share this opinion and point out that uncertainty about the final outcome, and especially about the composition of the House and Senate, will most likely have an impact on markets. According to him, there will be those who will try to anticipate the impact that these results could have on monetary and fiscal policy, on climate change or immigration and a “boost” on certain listed sectors, which in theory depend on the policy could benefit or harm the next president.
Despite this effect of greater election volatility on prices, all experts interviewed believe that the actual impact of the US elections on markets in the medium and long term needs to be put into perspective.
At Capital Group, for example, they explain that there is little difference in stock market returns achieved under the presidency of the Elephant Party (Republicans) than in legislative periods in which the institution symbolized by a donkey is dominated (Democrats). Since 1936, the ten-year annual return of U.S. stocks (measured by the S&P 500 index) since the beginning of an election year has been 11.2% when the Democratic Party won the election and 10.5% when the Republican Party won.
Historical series
Stock returns typically don't differ significantly in election years, according to an analysis by JP Morgan Private Bank. “If we go back to 1928 (since we have data), the average stock return in election years was 7.5%, compared to 8.0% in non-election years.” In his opinion, it's also not true that markets will go down if the one candidate or another wins: “We have seen upswings and downturns on both sides of the political spectrum.” The economic background tends to be more important.”
According to Schroders, it is precisely this macroeconomic background that will determine the behavior of various financial markets in 2024. In his opinion, if interest rates are cut as originally planned, a positive development can be expected for both stocks and bonds. One of their recent reports shows historical data on investment returns during 22 cycles of U.S. interest rate cuts since 1928. The average return of U.S. stocks was 11% higher than inflation in the 12 months after the Federal Reserve began cutting interest rates. Stocks also outperformed government bonds by an average of 6% and corporate bonds by 5%. Stocks have also outperformed cash by an average of 9% in the 12 months since the rate cut began.
Panza Capital believes investors should not change their long-term strategy “regardless of the American presidential election year.” In his opinion, basing the selection of one value or another on expectations about who will have power in the White House can be a mistake, “not only because it is difficult to know what will happen, but also, Because.” It is more important to know how you will react.” The experts of this manager also insist on this idea, commenting: “Although with the arrival of Joe Biden as president one could expect that the most popular stock market sectors would be those that with green energy, climate change or pharmaceuticals.” The reality is that it was the other way around, with more positive behavior, apart from technology, in the financial, defense or even oil sectors. We must remember, they conclude, that while Democrats and Republicans have different policy proposals that could alter growth expectations and benefits in some sectors, “the reality is that these proposals are not always implemented.” Sinn advises Capital Group that fears that new government policy could destroy a sector are “usually overblown”.
Given that there is still a long way to go before the American elections next November, JP Morgan concludes that while politics can evoke strong emotions, investors should not lose sight of their long-term investment goals. “We believe the economy will continue to be the dominant driver of policy decisions and markets in general.” He believes there are risks, of course, from current frictions like inflation to unforeseen issues like geopolitics, but to the extent As growth continues, pricing pressures will ease and the Federal Reserve will As we head down the path of monetary easing, there will be plenty of opportunities for investors in multi-asset funds in the coming year.
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