2024 is shaping up to be one of the most politically divided years in living memory.
At the start of July, the UK held a general election and established a brand-new government in the Labour party, overseen by former prosecutor sir Kier Starmer. This would be the first Labour government in the UK in over 14 years, with the general public seemingly sick and tired of the constant shenanigans and controversies created by the Conservative party.
The stock market indices in the UK reacted favorably to the result. Given the fact that the Conservatives had seen the economy crash under their rule, inflation reach double-digit numbers, the UK slip into recession, energy prices spiral out of control, and interest rates hiked to 5.25% it was hardly surprising. Not only that, but it meant certainty. Certainty that they should have the same government in power for the next 5 years. If there’s one thing the markets love, it’s certainty.
Sticking in Europe, we saw a battle between the left and right, as France’s left-wing alliance emerged victorious as they were able to secure 188 seats in the National Assembly, despite a victory for the far-right National Rally (RN) looking likely at the start of the month.
If they were the undercard, all eyes are now fixed firmly on the main event showdown in November, as Kamala Harris battles former POTUS Donald J. Trump for the title of president of the United States of America. But what do these elections mean for the economy, not just in the U.S, but around the globe as well?
A Political Whirlwind
On November 5 2024, we will see another Presidential Election in America. To say that the last one was controversial would be a vast understatement.
In 2020 Joe Biden defeated Trump to become the 46th President of the United States. What followed could be described as sour grapes at best, and criminality at worst. We saw mass pro-Trump protests across the nation, unfounded allegations of vote-tampering, riots, and the storming of the Capital.
In the years that followed, Trump would face numerous criminal charges and would be charged with four criminal counts, including conspiracy against the rights of citizens and conspiracy to defraud the US. He became the first former US President in history to be criminally convicted, and there is a very slim chance that he could even face jail time. Despite this, however, he is still running in the election.
Since Biden took control of the country in 2021, there were concerns about his age, health, and mental capacity. Since then, he did little to allay these fears. Earlier in the summer, he incorrectly introduced Ukrainian President Zelensky as ‘President Putin’ as well as his then-vice president Kamala Harris, as Vice-President Trump. At that point, a Trump victory looked highly likely. In July, though, Biden officially dropped out and endorsed Harris for the role. Since then, we’ve seen a failed assassination attempt on Trump, Biden’s own son facing criminal charges, and more political divide than we’ve seen in recent memory.
Despite all that however, we now officially have a battle between Kamala Harris and Donald Trump, to determine who will become the new President of the United States of America.
US Bond Markets
So, how could the elections affect global financial markets? Well, before we look overseas, we’ll stick with the US economy and look at bond markets.
In the event of excessive deficit growth, U.S bond markets could react very negatively, which is something that both the Republicans and Democrats will want to avoid.
To get an idea of what this could do to U.S bonds, just take a look back to October 2022 and Lizz Truss’ so-called ‘mini budget’ when she and then-chancellor Kwasi Kwarteng crashed the UK economy, with low-risk bonds in particular, taking a real hammering.
Many American citizens also cite reducing the US budget deficit as a main priority.
Bonds, which are typically seen as low-risk safe havens for investors, could suddenly become much more vulnerable, meaning investment portfolios will also become more vulnerable, putting them into a higher risk category. This was one of the primary reasons why lower risk investment portfolios in 2022 saw such large drops for the year.
Trump’s Trade Wars 2?
When Donald Trump was President during his first run, he imposed tough tariffs on overseas imports, particularly on China, where he imposed tariffs of between 10% and 25% in his first-term. These tariffs negatively impacted the markets and gave financial advisors and investors in general a real headache.
Should he win in November, he has threatened to impose much tougher tariffs of up to 60%. While tariffs that high are unlikely, you never know, and they will still likely be higher than the 25% the first time around.
If Harris wins however, Trump’s tariffs from the first time around will likely remain in place, as Biden kept them around when he took over. Needless to say, China-America relations are strained, though they should be far less volatile if Harris wins as opposed to Trump.
However, the main difference here is that Trump has also threatened to impose a 10% tariff on imports to the States across the board, and this includes those from US allies. This would almost certainly have a negative impact on global economies and the markets in general. It would also do little to strengthen America’s relations with other nations.
What This Means for the Markets
We can’t say for certain how the markets will react because we don’t have a crystal ball, and we can’t predict the future. What we can do is make some educated guesses.
Should Trump win, his policies would likely affect the markets as he would look to impose the 2018 tax cuts he implemented and make them permanent. He is also said to be looking to reduce Corporate tax rates from 21% to 15%. He also is looking to reduce regulation, and that includes regulation within financial services, which would make the markets and global economies more volatile. He will also likely clamp down on immigration, which could result in workforce disruption.
Trump’s policies could result in inflation once again increasing, which is a real concern as high inflation was the reason the FED hiked interest rates 11 consecutive times. As he could look to interfere with the FED, equity investors may also react negatively, which could have an impact on global markets, which tend to follow what the US markets do.
In terms of equity investment, a Harris victory without Democratic control of Congress would likely help steady the ship and reduce the risk of global trade wars, which could then disrupt the markets.
Of course, there are plenty of other variables which help to steer market directions, including sentiment, monetary policies, inflation rates, the FED finally cutting interest rates, and also valuations.