Article

The US presidential election and markets

Polls say the US election next year will be a rerun of Joe Biden versus Donald Trump, although both men face legal challenges ahead of their nomination.

| 6 min read

Next year, the looming US presidential election will start to impact markets more, as there will be substantial differences over tax, energy and foreign policy between the two main parties. For this year, US politics provides running news that – so far – has not changed equity and bond prices much.

Current polls are quite clear. Joe Biden is in a very strong position to win the Democrat nomination, with no serious rival wishing to stop him seeking a second term as president. Donald Trump is running away with the Republican nomination after an early energetic bid by Ron DeSantis, whose ratings have now subsided.

Polling for the more distant presidential election itself show the two men close together in the polls. Both have a strong core of party support. Both also have a lot of people who are very negative about them, reflecting the fact that they are both well known from their single terms in the presidency in recent years. US politics is very polarised and is fuelled by aggressive negative campaigns against both leading candidates.

It was Ronald Reagan standing for a second term in 1984 who memorably tackled the emerging issue of that election, the age of the candidate. “I will not make age an issue of this campaign. I am not going to exploit, for political purposes, my opponent’s youth and inexperience”. President Reagan was a mere 73 at the time, compared to Donald Trump (78) and Joe Biden, who will be 82 come the next election.

So far, those like Republican Nikki Haley who argues the US needs a younger generation of leaders and candidates, have made little headway even with their own party voters. Whilst some Republicans will be tempted to attack Joe Biden for his age with questions about whether he is up to the job out to 2028, others will be aware that their own preferred candidate is far from young.

Where Democrats and Republicans agree

As the world watches this most important of elections, we need to understand what is likely to happen as it will have an important impact on the economies and policies of the US and the wider world.

There are some things the Republicans and Democrats agree on. They both have versions of ‘America first’, favouring interventionist policies to onshore investment and secure more manufacturing activity for home. Both are concerned about the challenge China poses and want policies that create a technological divide with restraints on trade and on sharing intellectual property.

They both end up supporting substantial US federal borrowing, though their spending priorities are different. They did reach an agreement on suspending the debt ceiling until the election. They will both want decent growth and will hope that inflation is behind them by 2025 with interest rates lower.

Where they disagree matters to markets

Markets will take more interest in the things they disagree about as we get closer to the big day. They disagree about climate change and the need to eliminate fossil fuels to a strict timetable. The Republicans wish to reinforce the US strong position in producing oil and gas at home, whilst the Democrats wish to hit ever tougher targets for carbon reduction. The President is beginning to reduce new activity in the sector which Mr Trump would wish to expand.

They disagree about Ukraine, with many Republicans wanting to rein back support. They disagree about taxes, with Republicans preferring lower tax rates on better-off individuals and companies. They disagree about a wide range of cultural issues, over abortion, free speech, and attitudes towards gender and the education of young people. The approaches of Texas and Florida, two leading Republican states, are an indication of the differences, when compared to New York or California, leading Democrat states.

Both men are vulnerable to changes in perceptions.

Meanwhile, the campaigns will go on to choose the candidates. Both men are vulnerable to changes in perceptions. Joe Biden is more vulnerable to the age argument, as he has been filmed at a number of events where his critics see his behaviour and words as evidence he sometimes struggles with the demands of the job.

Both face the onslaught of lawfare. The Democrats are sure Donald Trump behaved badly in office, especially over the issue of the results of the last Presidential election. They hope some of these issues will have been to trial before the polls. They assume was Mr. Trump to be found guilty of any of these accusations it would lose him votes or lead to another candidate, though so far the accusations have not harmed him with core Republicans.

The Republicans are critical of the business activities of Hunter Biden and allege that his father, then the vice president, gave him support and assistance. The Republicans in the House are seeking evidence to impeach the President. It could be that either – or both – of these candidates loses support because of these problems before the final choice of candidate. So far, legal threats against them reinforce their core support and polarise US politics more.

Democrats manage the Biden age issues, and his media team shut down press conferences and explain away odd phrases as need arises. Republicans claim the legal attacks on their man are party political.

Right now, markets have concluded that a Biden/Trump re-run is likely – and it is too early to call the result of that contest. If that remains the position next year through the early primaries, markets will think more about who could win and what impact that will have on general economic policy and the prospects of specific sectors. We will watch the news carefully to see if the primaries might make a difference to the current outlook.

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The US presidential election and markets

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