The US election. Mark Ammunsden 3-minute Spot
As the election approaches, it's generating plenty of media headlines. Mark asks if it matters who's in the White House for financial markets.
Historically, the markets have performed well, both under Republican and Democratic leadership, as we have seen with the presidency of Donald Trump and Joe Biden. So, we don't think it will make much difference.
Historically, financial markets have tended to be more driven by economic fundamentals than by who's in power or their specific policies.
In June, the Democrats replaced Joe Biden with Kamala Harris as their presidential candidate, which has helped put their campaign on a firmer footing following a very shaky start. Harris is expected to maintain the current policy trajectory while markets focus more on Republican candidate Donald Trump, whose proposals could significantly shift the status quo. However, he makes many proposals and promises that never come to fruition.
Trump's agenda includes lowering corporate taxes (making the current 21% rate permanent and possibly lowering it even further) and reducing regulation. These moves are seen as favourable for US companies, making them more profitable. However, Trump's focus on greater trade protectionism and strict immigration policies could increase inflation and risk lowering US and global growth.
Protectionist measures could hurt international firms, especially those exporting to the US. Trump's policies are widely viewed as inflationary, and if implemented as proposed, the interest rate could remain higher for longer, negatively impacting US bond prices.
While Kamala Harris has promised to maintain the current policies, we have seen in the past some of her speeches have such a leftish stance that she makes our own Labour party look centre-right!
In the background of all the policy debates and poll headlines, the issue of the high US fiscal debt remains a pressing concern. US Government debt levels have been in focus recently due to the rising cost of interest payments on US borrowing—which are now getting close to the US’s bill for defence spending or Medicare costs.
Regardless of who wins the election, fiscal restraint appears unlikely, with debt levels expected to rise under both parties.
Notably, the election isn't just about who wins the presidency. Control of the House and Senate will significantly influence policy implementation. This is what we saw when Obama was in. He had no Control of the House, so he struggled to get any of his policies through. So, control of the House and Senate becomes more important than who the President is.
Given how much can still change between what the candidates are promising now and when the ink dries on new laws and executive orders, investors should be wary of betting on the financial impact of current policy proposals.
Historically, financial markets have tended to be more driven by economic fundamentals than by who's in power or their specific policies.