An American flag flutters in the wind. American elections: a decisive moment for your portfolio from an investor's point of view.
Insights

The US elections: a showdown for your portfolio from an investor’s perspective

Geopolitics
Insights
Market impact

Published on 11.06.2024 CEST

The US election is likely to dominate the headlines and, by extension, the interests of many investors until fall 2024. In the wake of the media showdown, the markets are already preparing for the “after.” Regardless of what the election result turns out to be, certain impacts and trends can already be identified from the candidate manifestos.

Read on to learn why the US elections have the potential to set the course for investors. How can what we know so far be translated into market expectations? And why, based on experience, does it pay to invest early?

Key takeaways:

  • Recent polls are very close, suggesting that the election race is wide open for both candidates.1
  • Historical data highlights the influence that the US presidential election can have on the financial markets.
  • The main differences between the two manifestos are in domestic policy issues, foreign policy discussion points, and climate policy.

History will guide us

Historical data shows that previous US elections have had a measurable impact on the financial markets.2 Investors need to understand these correlations if they want to adapt their investment strategies with good foresight and reflect market movements in their portfolios during the election period. What many people don’t know is that the impacts on certain sectors and products can be seen as early as the primaries, which take place between December and May. US equity returns are generally lower at the beginning of the election year but tend to rise again from May/June after the primaries. 3

It’s important to remember, however, that past events are no guarantee of future results: A variety of factors can affect the markets and historical patterns can change. Nevertheless, analyzing historical data can help in developing a better understanding of how political decisions can influence the markets.

If you want to gear your investment strategy to such events, you could also use current surveys and trends to make investment decisions. The candidates’ campaign platforms, however, are just as revealing as their popularity.

 

Investing early pays off threefold

Investing early during the US elections can be tactically advantageous for several reasons. Elections often bring uncertainty and fluctuations to the market, which can trigger short-term price movements. Investors can benefit from this volatility by investing early in assets that have dropped temporarily and may be undervalued.

In addition to this volatility, the election prospects are also relevant. Individual sectors and companies will react differently depending on the outcome of the election, which enables investors to take early positions in sectors that are likely to benefit from the political changes. An example of this would be investing in renewable energies before the Democrats win the election or in traditional energies  before the Republicans win.

The third consideration when it comes to election campaigns stems from promises for government spending. Early investors can position themselves to benefit from anticipated fiscal measures that could boost certain industries.

By investing early, you can diversify your portfolio better and manage risk more effectively. Investors can develop strategies to minimize the risk associated with political events while also benefiting from the opportunities they offer.

Election campaigns at the forefront

The US has had a de facto two-party system consisting of the Democrats and Republicans for over 160 years now. In the recent past, this dichotomy has led to even more extreme positions in parts of both parties. This, in turn, has encouraged the development of more polarized presidential candidates and, often, a very clear demarcation between the parties’ platforms.4
The performance of the industries focused on by the presidential candidates could therefore change significantly depending on the outcome of the elections. The relatively broad scope of presidential powers in the US increases the influence of presidential elections on the markets all the more.

 

Trump – «Make America great again!»

Three central themes from Trump's election campaign promises  summarized.5

Biden – «Let’s finish the job»

Joe Biden is exposing himself less in his election campaign promises and is pursuing the further development of existing measures from his current term of office.7

In focus: two candidates, two different campaigns

The nuances in both parties’ campaigns are to be found in the details. Donald Trump’s campaign is often referred to as Agenda 47—in reference to the upcoming 47th presidential election—and is akin to an updated version of “Make America great again.” Joe Biden, on the other hand, sees his job as not yet finished with his slogan “Let’s finish the job”.

In a detailed examination of the individual thematic blocks, our experts identified major divergences in three areas of the party programs: foreign, domestic and climate policy.

 

 

Three axes of opposition

 

Foreign policy: cooperation vs. competition

The two presidential candidates hold opposing positions on foreign policy. Donald Trump is in favor of the US withdrawing from conflicts abroad in order to use the resources freed up by this to fight the drug cartels in South America and thus solve the US’s drug problem. Joe Biden, on the other hand, wants to stick to the current joint policy with foreign allies and form a counterweight to foreign aggressors.

Both the Republicans and the Democrats have recognized over the years that an anti-China policy increases voter favorability.8   Democrats are pursuing a collaborative strategy, the Republicans are more of a “hardliner,” seeing themselves in direct competition with China. They therefore tend to focus on promoting the local economy, increasing import duties, and putting Chinese companies on the “Entity List“9.10

 

Domestic policy: regulation vs. deregulation

The Republicans are known for cutting taxes, slashing subsidies, and abolishing large numbers of regulations during their term of office. This could be beneficial for some sectors.

Conversely, Joe Biden is in favor of higher taxes on wealthy individuals and companies with an annual turnover of over one billion US dollars. Furthermore, the two parties have different positions on migration policy, with Donald Trump taking a more restrictive stance in line with his previous statements.

Depending on the candidate, regulatory policy could influence shares in various different companies, for example in the healthcare, energy or technology sectors. Within the equities asset class, industrialized countries are most likely to benefit; shares in companies in some emerging markets could be negatively affected by the trade war.

 

Climate policy: green vs. gray

President Joe Biden is backing a climate policy focused on renewable energies and supporting the IRA (Inflation Reduction Act). Biden has introduced new regulations and financial subsidies in favor of the energy transition.

Presidential candidate Donald Trump is quite different. His campaign tends to focus on traditional energy generation using oil, nuclear power, and non-renewable sources. His aim is to reverse the regulation of the energy sector, as he believes that the country’s energy requirements cannot be met by alternative energy sources in the medium term.

 

Impact on the markets—investment strategies against the backdrop of the US elections

Knowing how the election results might impact the markets and certain sectors gives us a solid basis for developing an investment strategy that incorporates these market assessments. The regulatory policy pursued by each candidate can affect the shares of certain sectors, such as the healthcare sector, the energy sector or the technology sector.

 

Sectors selected by us from Joe Biden’s election campaign that could benefit from a Democrat win:

Blue wind turbine icon: symbolizes energy and climate solutions.

Energy and climate

Promoting renewable energy and climate solutions for a sustainable future.

Blue car icon: symbolizes sustainable mobility with alternative transport systems.

Electric vehicles and green mobility

Encouraging sustainable mobility with alternative transport systems.

Blue spiral icon: symbolizes medical care and simplified access to medicines.

Healthcare and the pharmaceutical industry

Expanding medical care and simplifying access to medicines for a broader population.  

Blue road icon: symbolizes the development of local infrastructure and local manufacturing.

Infrastructure and production

Fostering the development of local infrastructure and local manufacturing.

Blue IT icon: symbolizes the promotion of cutting-edge innovation and growth in the media and technology sector.

Technology and media

Promoting cutting-edge innovation and growth in the media and technology sector.

Blue bag icon: symbolizes goods and services to cover daily needs.

Consumer goods

Providing basic goods and services to meet the day-to-day needs of American consumers.

Sectors selected by us from Donald Trump’s election campaign that could benefit from a Republican win:

Pink coal icon: symbolizes energy production from oil, nuclear power and other non-renewable sources.

Energy and fossil fuels

Supporting energy production from oil, nuclear power, and other non-renewable sources.

Pink missile icon: symbolizes defense technologies and systems to strengthen national security.

Aerospace and defense

Promoting defense technologies and systems to strengthen national security.

Pink building icon: symbolizes companies that are active in the development and management of real estate.

Real estate

Investing in companies active in the development and management of real estate.

Pink Truck Icon: symbolizes infrastructure, manufacturing, steel production, and the expansion of the border wall.

Infrastructure and manufacturing

Developing infrastructure, manufacturing, steel production, and expanding the border wall.

Pink Technology Icon: symbolizes cutting-edge innovations and growth in the fields of technology and media.

Technology and media

Promoting cutting-edge innovation and growth in the technology and media sectors.

Pink Telecommunication Icon: symbolizes opportunities in areas that could benefit from Trump's deregulation efforts.

Finance and telecommunications

Pursuing opportunities in areas that could benefit from Trump’s deregulatory efforts.

We have systematically analyzed potential market trends for both outcomes of the election, highlighting the sectors and asset classes that could benefit from each result.

Tension is rising. It is not yet clear who will come out on top: Both parties/candidates have a chance of winning the election. What is certain, however, is that the stock markets will reflect the latest developments until the election.

Even the smallest undertaking starts with a conversation

Are you looking for access to our experts?

We look forward to answering your questions.

1 https://www.nzz.ch/international/wahlen-usa-2024-die-neusten-umfragen-zu-trump-und-biden-ld.1824999

2 Performance data of US stocks since 1950, (LSEG Datastream Vontobel, as of: May 14, 2024).Vontobel analyses based on historical market data. For further information please contact our specialists

3 Performance data of US stocks since 1950, (LSEG Datastream Vontobel, as of: May 14, 2024).Vontobel analyses based on historical market data. For further information please contact our specialists

4 https://www.eurasiagroup.net/live-post/top-risks-2023-8-Divided-States-of-America

5 https://www.donaldjtrump.com/issues/economy

6 State within a state, also known as the shadow state. In the United States of America, there is an assumption that it is not the democratically legitimized decision-makers who control the country's destiny, but rather the “deep state”.

7 https://joebiden.com/

8 https://www.pewresearch.org/global/2024/05/01/americans-remain-critical-of-china/

9 The “Entity List” is a list maintained by the US government of foreign persons, companies and organizations that are classified as national security risks and that are subject to export restrictions and licensing requirements for the export of certain technologies and goods.

10 Cooperation/Biden: https://edition.cnn.com/interactive/2024/04/politics/biden-campaign-promises-dg/
Competition/Trump: https://www.donaldjtrump.com/issues/economy

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