Election Day for the 2024 presidential election is just around the corner, and investors nationwide are gearing up for potential market shifts.
With key issues like economic policies, taxes, energy, and trade hanging in the balance, understanding how the election results could influence the markets is crucial.
As we approach this pivotal moment, here are the top issues to keep an eye on and how they might shape your investment strategies.
Stock Market Cycles and Historical Election Trends
Looking back at history, we see some interesting patterns in stock market performance during each respective year of a president’s term:
- Year 3: Usually their best year overall.
- Year 1: Generally the 2nd-best year for performance.
- Year 4: Typically the 3rd-best year.
- Year 2: Typically the worst, often due to midterm elections.
Regardless of who wins, the market has shown resilience over time.
Even during politically charged periods, certain sectors tend to shine.
Remember, the markets react more to policies than personalities, so keep an eye on which industries are favored by the candidates — this could open up some investment opportunities.
Read through our guide from earlier this year on how to invest in an election year.
Tariff Policies and Their Potential for Inflation
One of the key topics for both candidates is tariffs, especially on imported goods.
Donald Trump’s Approach
Trump has proposed universal tariffs on goods manufactured outside the U.S. The goal is to boost domestic manufacturing, creating more jobs at home. However, higher tariffs could lead to higher costs for consumers, contributing to inflation.
Kamala Harris’ Approach
The Harris campaign is opting for a targeted tariff approach, maintaining many Trump-era tariffs but focusing more on protecting intellectual property and key industries. Her strategy could reduce the risk of broad inflation but still affect specific sectors like technology and manufacturing.
Impact on Investors
Both candidates’ tariff policies could directly affect pricing and profitability in import-dependent industries. Keep an eye on sectors like retail, consumer goods, and manufacturing.
If tariffs lead to rising prices, investments sensitive to inflation could experience some bumps along the road.
Corporate Taxes: A Clear Divide
Corporate tax policies present a stark contrast between the two candidates.
Trump’s campaign aims to lower the U.S. corporate tax rate, which could give businesses more capital for reinvestment. This would potentially benefit shareholders through increased dividends and stock buybacks.
Harris is meanwhile advocating for a global minimum corporate tax, alongside raising the U.S. corporate tax rate. This could end up increasing federal revenues, but may reduce the overall global competitiveness of U.S. companies.
If Trump’s lower corporate taxes take hold, it could be bullish for the stock market, particularly for large-cap U.S. firms. On the flip side, Harris’s approach might have mixed effects, supporting global equities but possibly weighing down U.S. stocks.
Keep a close watch on corporate tax shifts post-election, as these will likely impact sectors like technology and finance.
Income Taxes and Roth Conversion Considerations
When it comes to income taxes, the candidates’ approaches are notably different, especially for high earners.
Donald Trump’s Approach
Trump plans to extend the 2017 tax cuts, keeping lower tax brackets in place. He also supports continuing the Roth conversion strategy, allowing investors to convert traditional IRAs into Roth IRAs, paying taxes now in exchange for future tax-free growth.
Kamala Harris’ Approach
Harris seeks to reverse most of Trump’s tax cuts while maintaining them for households earning less than $400,000. Higher-earners would likely face increased tax rates, impacting long-term tax strategies for wealthier investors.
For those with significant retirement savings, especially in traditional IRAs, Roth conversions could potentially be less appealing under a Harris administration.
Investors should consider adjusting their tax planning strategies based on which candidate’s policies prevail.
Energy Sector Outlook: Traditional vs. Renewable
Energy is another area where Trump and Harris diverge significantly.
Trump continues to support oil and gas production with fewer regulations, aiming for U.S. energy independence through increased drilling and resource extraction.
In contrast, Harris champions green energy policies, pushing for expanded investment in solar, wind, and other renewable sources, while also aiming to reduce the country’s reliance on fossil fuels by tightening regulations.
This means that while Trump’s policies may benefit oil and gas companies, Harris’s focus on renewables could lead to long-term growth opportunities in clean energy stocks.
Diversifying your energy investments to account for potential regulatory changes could be a smart strategy.
Regulation: Less vs. More
Regulation plays a crucial role in shaping the business environment and overall market performance, influencing costs, profitability, and long-term stability
Trump’s Deregulation Approach
Trump has focused on reducing regulations across industries, particularly in finance, energy, and healthcare. This has often translated into lower costs for businesses and increased profitability.
Harris’ Plan for Oversight
Harris is expected to reintroduce stricter regulations, particularly in areas like banking, energy, and healthcare. This would likely increase compliance costs but could also provide more stability in the long run.
For sectors reliant on lighter regulations — such as banking and energy — Trump’s approach could lead to more robust short-term growth. Harris’s policies might curb growth in certain industries but could stabilize areas like renewables and healthcare.
National Debt and Long-Term Concerns
Regardless of the election outcome, both candidates will be confronted with the challenge of addressing the ever-growing U.S. national debt.
Trump’s strategy for managing the debt largely revolves around stimulating economic growth, aiming to increase revenue organically without raising taxes. He also seeks to reduce government spending where possible, believing that a thriving economy will naturally mitigate debt over time.
In contrast, Harris’s approach is likely to involve targeted tax increases, particularly on higher earners and corporations, as a way to boost federal revenue and address the debt more directly. However, this strategy could pose risks to long-term economic growth, especially if higher taxes dampen business investment and consumer spending.
As debt levels continue to rise, the government may need to increase interest rates to attract buyers for U.S. Treasury bonds, which could lead to inflationary pressures. Investors in fixed income and government bonds should keep a close watch on evolving debt management policies, as shifts in interest rates can impact bond yields and overall market stability.
Additionally, rising debt could create volatility in equity markets, particularly in sectors sensitive to government spending and fiscal policy. Staying informed about policy decisions regarding debt will be crucial for maintaining a balanced and resilient portfolio.
Navigating the Uncertainty
In the midst of political noise, it’s easy for investors to feel overwhelmed. However, focusing on long-term fundamentals and economic policies rather than getting lost in short-term election outcomes is essential.
No matter who wins, history shows that the markets will find their equilibrium, creating new opportunities along the way.
- Monitor tariff policies closely, especially in sectors like retail and technology.
- Corporate tax changes could influence stock performance, so plan accordingly.
- Energy and regulatory shifts could open up new investment opportunities, particularly in clean energy and renewables.
- Remember that the stock market historically performs well over time, regardless of political outcomes.
By staying informed and keeping a diversified portfolio, investors can successfully navigate the uncertainty surrounding the election.