October 2024 Update: Election Outlook Snippets

We know the upcoming election is top of mind and what could (or could not) be affected by the outcome. Here are some snippets on a few leading topics.

TRADING VS. INVESTING AND HOW MARKETS REACT DURING ELECTIONS: 

Trading is like gambling; it is a short-term process usually centered around events and news. This is what you typically see all over TV when you see the markets going crazy. Traders love volatility but we are not traders, and you are not traders.  

Instead, we are investors and are looking to invest your hard-earned money over a longer time horizon to help you meet your financial goals. Investing requires patience, it requires discipline, and sometimes it even requires the use of blinders.  

The election is top of mind for everyone right now. As of this writing, the Presidential race is close, and while you may have your views on which candidate you would prefer to see win, despite what the news is trying to sell you, the market typically does not care who wins.  

Historical evidence shows that running up to elections and shortly after (several months) markets experience volatility as they sort out what the presidential winner means for this industry, that sector, or the economy. However, after those few months of volatility, things start to settle down and the markets go back to operating like they normally do – efficiently. In other words, base investment decisions on rational decisions because of fundamentals instead of potential near-term political outcomes.  

POLICY STANCES AND POTENTIAL MARKET REACTIONS: 

Three big areas of focus for the markets with regards to policy decisions by each candidate are taxes, Trade/Tarriff & Industrial policy, and Immigration.  

The sectors of the market that could see the most volatility are industrials, energy, and Healthcare due to the divergent approaches from each candidate regarding industrial policy, tariffs, transition to clean energy, and healthcare/insurance.  

Taxes: A Trump win most likely leads to an extension of the TCJA which the markets would look at favorably. One caveat is that the credit/bond markets could see increased pressure due to increased concerns over debt sustainability as it is estimated the full extension of the TCJA would cost around $4.6 trillion over the next decade.  

A Harris win would most likely lead to higher marginal tax rates and the proposal of a higher corporate tax rate. Given the implication of higher corporate tax rates, markets may not look favorably at that and could react negatively. However, Harris has supported extending tax cuts for those making less than $400K/year which would lead to continued consumer spending and lead the markets to react favorably.  

Immigration is another big focus of the election and could impact several sectors of the economy if Trump wins and follows through with his views on the mass deportation of migrants. This would lead to slower population growth which could have negative knock-on effects for sectors given lower housing demand and continued labor shortages.

INFLATION AND FED STANCES: 

Inflation has shown continued signs of cooling and is now very close to the Fed target of 2%. Additionally, the economy is not showing signs of slowing and instead continues to be robust, alleviating fears of an impending recession and leading many to believe the highly talked about “Soft Landing” has been achieved.  

The Fed rate cut in September and signals that two more cuts are coming in November and December, which could lead to a positive reaction in the equity markets and a mixed reaction in the bond markets. Powell has proven he is driven to make decisions regardless of politics and should be trusted to continue that approach regardless of the outcome of the election. This is a very positive sign for the markets in general.  

We hope you are enjoying the fall; it has been gorgeous in Minnesota. Over the next several days, our wish for you is to spend time doing what makes you happy and try to avoid social media and TV, where the political news and ads are unrelenting.

We are focused on our client’s long-term goals. As always, please feel welcome to contact us with any questions.

The Bond&Devick Team