US presidential elections and market dynamics: How to prepare for 2024
With the US presidential elections on the horizon in 2024, investors are understandably anxious about likely market reactions to the emerging political scenario. However, historical trends suggest that election outcomes have minimal long-term impacts on markets.
Data since 1936 shows that the 10-year annualized returns for US stocks (as measured by the S&P 500 index) have been similar regardless of the winning party: 11.2 percent for Democratic victories and 10.5 percent for Republicans, according to Capital Group and Standard & Poor’s.
This year, key issues for American voters will significantly influence the election outcome and the country’s political landscape.
UBS predicts politics will play a major role in 2024, advising investors to brace for politically induced market volatility and consider appropriate hedges.
The financial group suggests gold as an effective hedge against escalating geopolitical tensions. For those concerned about the widening US fiscal deficits, UBS recommends a steepening trade on the US government bond yield curve, involving the purchase of five-year Treasury bonds and the sale of 10-year ones (on a time-bound basis).
A divided Congress post-election is deemed most likely by the Swiss financial services group. It foresees the Republicans taking the Senate, given fewer seats to defend, but also projects a higher chance of Democrats regaining control of the House.
In such a scenario, bipartisan cooperation would be crucial for passing legislation, thereby reducing the likelihood of major domestic reforms but maintaining the president’s discretion on foreign policy matters, including trade relations with China and Washington’s stance on the Russia-Ukraine and Israel-Hamas conflicts, the Swiss group says.
In the event of President Joe Biden being re-elected, a continuation of the current status quo is expected, with sustained US support for its allies. Conversely, a Donald Trump victory, particularly on an “America First” platform, might lead to a significant reduction in US support for Ukraine, compelling European governments to ramp up spending to counter fiscal risks and potential Russian military advancements.
Elections worldwide in 2024
The US election is not the only significant political event in 2024, though. The Economist notes that this year will witness elections in countries representing over half the world’s population, totaling over four billion people.
An unprecedented number of people are expected to vote in 2024, with 76 countries, including Britain, Russia, India, Brazil, Turkey, Ukraine, the US, and others, scheduled to hold general elections. This could usher in considerable market volatility and shifts in the foreign policies of poll-bound countries.
