Elections can be nerve-wracking times for investors. Just as Americans were getting used to the idea of a second Biden or Trump term, the momentum shifted and President Joe Biden withdrew from the race – endorsing Vice President Kamala Harris instead. With such a big election right around the corner, and a whole new candidate to consider, investors may be concerned about how the outcome will impact their holdings.
To address these uncertainties, J.P. Morgan Wealth Management held a webcast on August 1 about the potential investment implications of the election. Moderator Elyse Ausenbaugh, Head of Investment Strategy at J.P. Morgan Wealth Management, spoke with Dr. David Kelly, Chief Global Strategist at J.P. Morgan Asset Management.
The topics they covered included historical market behavior during elections, as well as what we know about current polling, the presidential candidates and how they’ve impacted markets before. Here are some key insights from the webcast into how your investments may be affected by the 2024 election.
While election years can feel like a rollercoaster of bold news headlines and market dips and spikes, Kelly assured investors that they don’t usually have a lasting impact on investments.
“Generally, we have actually not seen very different behavior or statistically significantly different behavior in election years from other years,” Kelly said. “Of course if you think about it, in recent history there have been some extraordinary election years.”
Kelly pointed to 2020 and the COVID-19 pandemic, 2008 and the Great Recession and 2000 when the tech bubble burst.
“All of those things affected markets generally,” he continued. “But […] the one thing that I would say happens is after the election, markets have a tendency to go up a bit. The reason for that is because [on] Election Day uncertainty unfolds, the election occurs, now you know what the result is. The stock market hates uncertainty. When that falls, you often have a rally for the rest of the year.”
The nation is focused on the Harris vs. Trump race, but the election will also determine where Democrats and Republicans stand in the House and Senate.
“Control of the White House will matter for policy, but you can argue that control of Congress matters just as much,” Ausenbaugh said.
Kelly agreed. “The race is very close, and we’ve only got a bit of recent polling since these events transpired,” he shared, referring to Trump’s assassination attempt and Biden’s withdrawal. “On the Senate side it looks like the Republicans have a slight edge. [With] the House it may be the Democrats [with the] edge on a close election…What I would say the most likely outcome is you don’t get all three going to one party, so you have divided government.”
Though he predicted a divided government, in Kelly’s estimation there’s still about a 10% chance of a landslide Democrat or Republican sweep.
Kelly also broke down each administration’s stance on taxes.
- Trump win: The Tax Cuts and Jobs Act of 2017 is likely to be extended beyond the end of 2025.
- Harris win: Some of the tax cuts and breaks may be extended, but the top tax rate on high-income earners may go up. Estate taxes may also increase to previous levels.
Ausenbaugh added that the corporate tax rate will stay where it is, whether the Tax Cuts and Jobs Act is extended or not.
With either administration, Kelly expects the federal debt to continue to rise, which is a problem.
“I don’t think [the federal debt is] going to cause a short-term crisis but it limits the long-term interest rates coming down,” he explained. “Either way we are looking at $2 trillion deficits as far as the eye can see. If the Treasury department has to borrow an extra $2 trillion every year, it will have to pay in terms of interest rates.”
Kelly quickly went over some other hot-button topics that are under the spotlight this election cycle.
- Trade and tariffs: Trump is historically pro-tariff and may introduce higher tariffs again. Biden has also introduced some tariffs during his term. For his part, Kelly’s opinion is that tariffs slow down the economy.
- Social Security: Kelly doesn’t think the election winner will impact Social Security in the near term, as it’s a popular program that policymakers will go out of their way to secure funding for.
- Immigration: Kelly suspects there to be bipartisan immigration reform no matter who takes office.
- Defense spending: Kelly believes there will be an increase in defense spending under either Trump or Harris. With the rise in autocracies around the world, he says it’s more important than ever to focus on cyber-defense and different types of weapon systems.
One thing investors should steer clear of is expecting certain sectors to perform well – or poorly – based upon who’s in office. According to Ausenbaugh, “Even as the politicians go and campaign on certain policy platforms, we should be very careful as investors about over-indexing any assumption how that may play out in markets.”
An example of this is green energy. One may assume that this sector would perform well under a Democratic administration and take a dip under a Republican one. But that hasn’t been the case in the last few terms.
“If you look at the energy sector, during the last Trump administration, green energy companies did extremely well and fossil fuel companies lagged,” said Kelly, “and during the Biden administration fossil fuel companies have done very well and green energy companies lagged. Which is exactly opposite of what you would expect.”
Democrats and Republicans have different approaches to taxes, trade and other key policy decisions, and which way the election goes is likely to have some impact on your finances. However, what’s unlikely is that short-term market changes due to the election will have long-term ramifications for investments.
It’s also important to remember that no investor can tell the future. Even if one candidate may seem better than the other, as far as markets go, things could quickly change due to unforeseen circumstances during their time in office.
“You don’t want to make huge bets based on politics,” Kelly advised. “[First], you don’t know how the political race is going to transpire. Second, even if you thought you had the policies down, remember what really defines a presidency and a period is not the policies that a party proposes before they go into the White House or Congress; it’s what happens then, the events that occur like the pandemic or the Great Financial Crisis or 9/11, which really change how an administration and political system have to react. We don’t think we should make big bets based on political outcomes.”
Read More: A New Presidential Race Is On – Know the Potential Investment Implications