While markets have historically returned over 10% during US election years, 78% of the mass affluent and high-net worth investors in Janus Henderson’s investment survey expressed concerns over how this year’s US election will occur.
While the S&P 500 has ticked up 14.6% year-to-date, Marc Pinto, head of Americas equities, and Chris Benway, director of research, did note that one possibility for volatility in the markets would be a contested or prolonged result. But the duo stated that regardless of election winners, sector themes would play a “larger role” in investment trends.
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“We expect the year’s biggest market drivers – including the trajectory of interest rates, economic growth, inflation, and corporate profits – to continue shaping the investment landscape over the next several months,” Benway and Pinto said.
“Additionally, powerful secular trends like advancements in artificial intelligence (AI) and the burgeoning obesity drug market are poised to maintain momentum, irrespective of the White House occupant.”
Pinto and Benway identified immigration and tariffs as two areas where the election could impact markets, but noted that tariffs were one area where former President Donald Trump and President Joe Biden have “common ground”.
“Both candidates have signalled potential tariff increases, which we’d expect to have inflationary effects, driving up costs of goods sold and prompting companies to raise prices to preserve margins. In general, tariffs could be a net negative for economic growth, acting as tax hikes that raise costs and disrupt supply chains,” Pinto and Benway said.
Sectors including auto, retail, and electronics will likely feel the biggest impacts from these changes, as the US looks towards alternatives from China.
“Conversely, tariffs may help protect young industries trying to build domestic capacity,” the Janus Henderson duo said.
“Joe Biden’s recent 100% tariffs levied on Chinese electric vehicles (EVs) are aimed at helping US automakers better compete as that market matures. The US has also prioritised boosting domestic manufacturing capabilities in areas where China currently dominates, such as semiconductors and solar panels.”
In the past, there have been mixed results for which party is better for the economy, providing no clear winner for the economy. A unified government for democrats returned on average 12.1% in the S&P 500 since 1937. A united Republican government returned 16.1%, but a Republican president with a split congress returned just 9.4% while a Democratic president with a split congress returned 15.9%.
“While proposed policies and contested-result rhetoric are worth monitoring in the coming months, given the range of plausible political outcomes, we think investors would be wise to focus on big-picture market drivers,” Pinto and Benway said.
“Trends like productivity growth from digital transformation, AI, and automation advances; rising emerging markets demand; and healthcare and clean energy innovations may have a larger influence on the market’s ultimate winners and losers than who ends up occupying the White House.”
