What Will Happen in Markets as the U.S. Election Approaches?

Foreign, domestic, social, energy and all other U.S. policy directions are on the November 5 ballot. Meanwhile, incumbent President Biden has one of the lowest approval ratings in history. A New York jury recently convicted former President Trump on thirty-four felony accounts and faces a July 11 sentencing hearing. While he will appeal the conviction, he faces multiple other state and federal felony charges over the coming months. 

Markets reflect the economic and geopolitical landscape, which remains a hornet’s nest of actual and potential problems. The election will likely be so close that each candidate could claim victory, igniting another U.S. and world crisis over the coming months. Market volatility creates many opportunities for nimble traders with their fingers on the pulse of markets, but it is a nightmare for passive investors who tend to panic when price variance explodes. 

A Biden win would lead to the following policy positions

There are few surprises about what another four years of the current administration would look like:

• Fighting climate change via regulatory reforms supporting alternative and renewable fuels and inhibiting hydrocarbon production and consumption. 
• Higher corporate and individual taxes to reduce the deficit. 
• Higher social spending on entitlements and other programs.
• Support for Ukraine and Taiwan in the conflicts involving Russia and China. 

A Trump victory would be a complete reversal of the following policy positions

• A “drill-baby-drill” and “frack-baby-frack” approach to traditional energy commodities to achieve U.S. energy independence and increase revenues through exports. 
• A reversal of the current immigration policies. 
• Lower corporate and individual taxes. 
• Reduced spending on entitlements and government size to reduce the deficits. 

Markets that could rally if the current administration has four more years

Support for Ukraine and Taiwan and a continuation of the bifurcation of the world’s nuclear powers could support defense spending and defense contractors. 

More government spending could lead to stubborn inflationary pressures, supporting inflation-sensitive commodities. Increased regulations on traditional energy commodity production and consumption could keep a bid under oil and gas prices. Meanwhile, addressing climate change will increase the demand for copper and other metals, which are critical inputs in alternative energy initiatives. 

Markets that could take off on the upside under a second Trump administration

While traditional energy commodities could decline on increased U.S. production, lower corporate taxes would likely increase profits, leading to higher stock prices. Meanwhile, increased tariffs and trade restrictions to achieve political goals could create higher volatility in many commodity markets as trade restrictions create roadblocks to cross-border trading and increase the potential for price distortions in the raw materials that are global markets. 

How to approach markets going into and after the election- Be prepared for likely surprises

Recent polls show that the 2024 U.S. Presidential election is a virtual toss-up. The United States is more divided across political lines than at any time in modern history. Moreover, the election results will disappoint at least half the country. 

The incumbent President has some of the lowest approval ratings in history. The former President challenger has a conviction on thirty-four felony counts in New York hanging over his head. Moreover, he is awaiting trial on a slew of other local and federal felony counts. 

There is a lot at stake in the November election, with domestic and foreign policy on the ballot for the coming four years. Emotions are running high and will increase as Election Day approaches. The winner will claim a mandate in its aftermath, while the loser is likely to contest the results. 

Markets reflect the geopolitical and economic landscapes. The United States remains the world’s wealthiest country and a leading military power. Uncertainty leading up to the election could ignite significant volatility in markets across all asset classes, and the results could have a similar impact. Meanwhile, a divided government, with opposing leadership in Congress and the Senate, would create the gridlock that the country has become accustomed to over the past year. 

The bottom line is that markets could be in the eye of a very volatile storm. While the U.S. election remains a critical factor for the future, the geopolitical landscape is a tinderbox of potential problems, with wars in Ukraine and the Middle East, and the rising potential of a Chinese move to reunify with Taiwan.

While the many issues facing the U.S. and the world threaten to increase market volatility, the surprises always cause the most price variance. The 2008 U.S. housing meltdown and global financial crisis, the 2020 worldwide pandemic, and the 2022 Russian invasion of Ukraine are examples of surprises that shocked markets and ignited volatility. 

Approach all markets with a risk-reward plan and stick to the program. While it is always acceptable to adjust risk and reward levels when the market moves in the anticipated direction, have the discipline to stick to risk-stop levels when prices move contrary to expectations. Do not allow profits to turn into losses; taking small losses can prevent devastating ones. 

The markets are moving into a highly uncertain period. Fasten your seatbelts for what has the potential to be a wild ride. 

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