The upcoming US presidential election has become one of the most surprising in American history, with President Biden withdrawing his candidacy and endorsing Vice President Kamala Harris as his successor. Key members of the Democratic Party are now united in their support for her nomination.
Biden’s decision was widely expected after his poor performance in the debates raised questions about his fitness to be president, according to the latest AP-NORC poll. Two-thirds of Democrats think Biden should withdraw.As of mid-July, betting markets were estimating there was a more than 50% chance that Harris would succeed him.
Latest ResearchshowHarris is likely to fare slightly better against Trump than Biden, but not enough to change the outcome of the election.
Meanwhile, bond traders are positioning for a Trump victory in November that would give Republicans control of both houses of Congress.Trump TradeA “yield rally” by bond traders on betting that a Trump victory would bring tax cuts and higher tariffs has gained momentum this month, according to Bloomberg.
Traders are confident that these policies will boost inflation and bond yields, with the main sign being a steepening of the Treasury yield curve, with longer-term bond yields falling less than shorter-term ones as inflation has fallen.
This assessment is recent.Wall Street Journal surveyMost economists who participated predicted that inflation would be higher under a Trump administration than under a Biden administration.
According to the Committee for a Responsible Federal Budget, the main reason is that President Trump is seeking significant tariff increases.Tax Cuts and Jobs Act of 2017The latter Cut federal government revenues by $4-5 trillionOver the next 10 years.
In contrast, the stock market has yet to react to the latest political developments. Instead, stock investors are The Federal Reserve Board The Fed is scheduled to cut interest rates at its September Federal Open Market Committee meeting amid signs the job market is softening.
They also know what happened after Trump’s surprise victory in the 2016 election: The stock market initially plummeted on the news, then rose to a record high in 2017 on hopes of tax cuts.
since then,The federal debt burden on the nation is snowballing.In the wake of the COVID-19 pandemic, the ratio has risen to an all-time high and is currently on track to surpass 105% of GDP since the end of World War II, so this outlook could keep bond yields elevated even as the Fed eases monetary policy.
While investors are well aware of the fiscal policies of Trump and Biden, there is little information on the policies of Biden’s successor, although Kamala Harris is expected to continue the policies of the Biden administration.
Given the macroeconomic uncertainty, Goldman Sachs economists say equity investors should: A Trump victory could lead to deregulation of the sector Banking, healthcare, oil industry etc.
For example, in the energy sector, we believe that liquefied natural gas (LNG) is the clear winner in the current environment.Export BanTariff increases on non-free trade agreement countries would be eliminated. The oil sector would also benefit from expanded federal land leasing and offshore energy development.
In my assessment, investors should not make significant changes to their investment portfolios. Long-term stock market returns are driven primarily by the performance of the U.S. economy, with politics playing a limited role in most cases.
The most extraordinary event in the postwar era was the election of Ronald Reagan to the presidency in 1980.The end of 1970s stagflationHe ushered in an era of faster economic growth, lower inflation, and strong stock market returns. Key policy changes included lower corporate and personal taxes, deregulation of business, and helping the Federal Reserve keep inflation in check.
After Trump’s election eight years ago, many investors saw his victory as a potential “game changer” because some of his economic policies were similar to those of Reagan. But investors have since learned that there are substantial differences between “Reaganomics” and “Trumponomics,” especially when it comes to international policy.
Looking back at what happened after that,Economic performance is hard to distinguishThe Trump Administration has introduced a larger shift in the rate of economic growth than the Obama and Biden Administrations. The trend growth rate of real GDP over the past 25 years has been about 2% per year, more than 1% lower than the trend rate over the second half of the 20th century. The slowdown in economic growth is primarily due to slowing population growth in the United States.
The most significant deviations from trend during this period were the 2008 financial crisis and the outbreak of the COVID-19 pandemic in 2020. While the initial shock was accompanied by de-inflation, the pandemic propagated higher inflation around the world through supply chain disruptions.
So when politicians claim they can dramatically change the trajectory of the economy, people should be wary.
This perspective was shared in a recent webcast from JPMorgan Wealth Management. How the presidential election will affect your investment portfolioThe firm advises clients that “while the election may be stressful, you will likely be better off not letting the emotions that come with it derail your long-term financial plans.”
For this reason, I believe investors should set politics aside and be objective when making strategic investment decisions.
Dr. Nicholas Sagen is an economic consultant with Fort Washington Investment Advisors and is affiliated with the University of Virginia Darden School of Business. He said:“Investing in the Trump Era: How Economic Policies Affect Financial Markets”
