Macro matters: The trouble with Trump

As the shadow of Donald Trump looms large over the 2024 US election, how can investors navigate the added market volatility that often accompanies the race to the White House?

President Donald Trump talks on the phone aboard Air Force One during a flight to Philadelphia, Pennsylvania, to address a joint gathering of House and Senate Republicans, Thursday, January 26, 2017. This was the President’s first trip aboard Air Force One.
Copyright: Official White House/Shealah Craighead

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The year ahead is set to be dominated by politics as 50 countries, including seven of the world’s 10 most populous nations, head to the election polls. However, much of the focus is likely to centre on Washington and the race for the White House, as former president and frontrunner for the Republican nomination Donald Trump attempts to return to the Oval Office.

With election cycles often volatile periods for investment returns – and a particularly tense US race on the horizon on 5 November – what should market participants expect?

JP Morgan Asset Management global market strategist Hugh Gimber points out that investors have seen lower average returns and higher average volatility for the S&P 500 during election years compared with non-election years for almost a century.

See also: ‘Unsustainable’ US debt: Could the Fed consider cutting interest rates?

“Yet it would be a mistake to think this was purely down to politics,” he says. “Election years have coincided with some of the most memorable market events during recent history, such as the technology bubble bursting in 2000, the financial crisis in 2008 and the Covid pandemic in 2020.

“What’s happening in the economy typically matters more for markets than what’s happening at the polling stations.”

He adds: “The fiscal promises of the successful party are often key to how markets react. For example, tax cuts enacted by president Trump in 2017 fuelled a strong rally in the stockmarket given the wave of earnings upgrades that followed. In the 2024 election, however, limited fiscal headroom is likely to make it very challenging for any party to commit to major tax cuts or spending programmes.”

An added dimension to the 2024 race is the involvement of former president Trump, who is currently the frontrunner for the Republican nomination despite facing criminal charges.

Quilter Investors investment strategist Lindsay James says the former president’s potential candidacy raises the stakes for markets. “There has perhaps never been a more consequential and important US presidential election than this one and it tops the list of the events to watch in 2024.

To read more, visit the January edition of Portfolio Adviser Magazine

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