Wall Street looks askance at the White House

This year the polls will smoke.

In 2024, 3.7 billion people in 70 countries are called to vote.

At the beginning of June there are elections in the European Union to determine the composition of the Community Parliament.

Throughout 2024, new governments will also be elected in India, Pakistan, Brazil, Mexico, Belgium, Bulgaria... The appointments with the well-worn "party of democracy" accumulate, but if one stands out above the rest it is the call to choose the next tenant of the White House.

The US presidential elections will be held on Tuesday, November 5.

Until then, for one reason or another, they will be on everyone's lips.

Until June, because the States and political parties hold primary elections and their party assemblies (the so-called caucuses).

From July to early September, because both Democrats and Republicans will hold their national conventions to elect their candidates.

And, later, because it will be the turn of the debates between the presidential candidates who, if there is no surprise, will be the current president, Joe Biden, and his predecessor in office, Donald Trump.

How will the electoral uncertainty surrounding the leading economic power on the planet affect the markets?

The experts from the management company Panza Capital warn that “months of noise” are coming for both Wall Street and the stock market “due to the importance of the United States in the financial world.”

From JP Morgan Private Bank, they remember that election years “tend to be more volatile than the rest, especially in the period prior to voting day.”

Schroders and Capital Group share this opinion and point out that it is more than likely that the uncertainty about what the final result will be and, above all, how the composition of the House of Representatives and the Senate will be, will affect the markets.

In his opinion, there will be those who try to anticipate the impact that these results may have on monetary, fiscal policy, on climate change or immigration and "rebound" on certain listed sectors, theoretically benefited or harmed depending on the policies of the next president.

Despite this effect of greater electoral volatility on prices, all the experts consulted believe that the real impact of the US elections on the markets in the medium and long term must be put into perspective.

At Capital Group, for example, they explain that there is little difference in the stock market harvest obtained under the presidency of the elephant party (Republicans) as in the legislatures dominated by the institution symbolized by a donkey (Democrats).

Since 1936, the ten-year annualized return on US stocks (based on the S&P 500 index) since the start of an election year was 11.2% when the Democratic Party won the election and 10.5% when the winner It was the Republican Party.

Historical series

According to analysis by JP Morgan Private Bank, stock returns usually do not differ much in election years.

“If we go back to 1928 (since we have data), the average return on stocks in election years was 7.5%, compared to 8.0% in non-election years.”

Nor is it true, in his opinion, that the markets will sink if one candidate or another wins: “We have seen booms and busts on both sides of the political spectrum.

The economic background tends to matter more.”

It is precisely this macroeconomic background that, at Schroders, they believe will determine the behavior of the different financial markets in 2024.

In his opinion, if a cut in interest rates occurs, as initially planned, a positive performance can be expected from both stocks and bonds.

According to one of its most recent reports on historical data on investment returns during 22 cycles of US interest rate cuts, since 1928, the average return on US stocks has been 11% higher than inflation. in the 12 months after the Federal Reserve began interest rate cuts.

Stocks have also outperformed government bonds by 6% and corporate bonds by 5% on average.

Equities have also outperformed cash by 9% on average in the 12 months since the rate cut began.

At Panza Capital they believe that the investor should not change their long-term strategy "no matter what year of American presidential elections it may be."

In his opinion, conditioning the selection of one or another value based on the expectations of who will have power in the White House can be a mistake, “not only because it is difficult to know what is going to happen but it is even more difficult.” "know how they are going to react."

The experts of this manager also insist on this idea by commenting that “although with the arrival of Joe Biden to the presidency it could be expected that the most favored stock sectors would be those linked to green energy, climate change or pharmaceuticals, The reality is that it has been the other way around with more positive behavior, apart from technology, in the financial, defense or even oil sectors.”

We must not forget, they conclude, that although Democrats and Republicans have different political proposals, which could alter expectations of growth and benefits in some sectors, "the reality is that these proposals do not always end up going ahead."

In this sense, Capital Group points out that when everyone is concerned that a new government policy could destroy a sector, this concern "is usually exaggerated."

Taking into account that there is still a long way to go until reaching the American elections next November, JP Morgan concludes that, although politics can evoke strong emotions, investors should not lose sight of their long-term investment objectives.

“We believe that the economy will continue to be the predominant driver of political decisions and markets in general.”

In his opinion, of course, there are risks, from current points of friction, such as inflation, to unforeseen ones, such as geopolitics, but as long as growth is maintained, pressures on prices will decrease and the Federal Reserve will embark on a path of monetary easing, there will be ample opportunities for investors in multi-asset funds in the coming year.

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