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2024 US Presidential Election: Impact on the US Dollar and Stock Market

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Important points to remember:

  • This summer’s Democratic and Republican national conventions will mark the start of an active election season.
  • It is important to keep an eye on the potential impact of elections on capital markets and investments.
  • The future of the US dollar will depend heavily on the outcome of the presidential election and subsequent policy decisions.

The future of the US dollar depends on the presidential election

The future of the US dollar will depend heavily on the upcoming US presidential elections in November. There is widespread agreement on this point, but differing opinions on the likely outcome.

Possible outcomes under democratic leadership

The implications of a Democratic victory are widely seen as clear. The dollar has performed strongly in recent years under President Joe Biden, who has backed significant fiscal stimulus while authorizing the Federal Reserve to raise interest rates to fight inflation. This combination of expansionary fiscal policy and tight monetary policy has supported the currency in line with conventional economic theory.

However, if Biden secures a second term, or if another Democratic candidate takes office, existing large budget deficits and alarming levels of public debt may limit fiscal flexibility. At the same time, inflation may subside, which may prompt the Federal Reserve to lower interest rates and change its policy mix in a direction unfavorable to the US dollar. While this does not predict a US dollar crisis, it does suggest a scenario in which the US dollar may weaken to some extent.

Additionally, the Biden administration is working with allies in implementing financial sanctions against Russia to minimize the international dispersion of reserves that could weaken the dollar’s strength.

Mixed predictions from Republican leadership

The impact of a second term for Donald Trump on the currency is more complicated to predict. Historically, the US dollar has strengthened after a surprise victory in 2016 and weakened around his 2020 election loss. A similar pattern could emerge if Trump is re-elected, especially if he pursues further tax cuts for corporations and the wealthy, policies that have historically favored a stronger dollar.

Moreover, President Trump’s penchant for import tariffs would also support the dollar by encouraging the Federal Reserve to raise interest rates in response to rising domestic product prices and inflation, despite the economic costs. However, if President Trump urges the Fed to keep interest rates low, this could lead to prolonged inflation and a decline in the value of the dollar. There has even been discussion of changing the Fed’s operating framework to increase the president’s influence, which could affect the stability of the US dollar.

There are also signs that leading advisers to the Trump Administration are supporting a policy of weakening the U.S. dollar to mitigate the impact of tariffs on the trade balance. Such measures could include further sanctions against countries that fail to stop their currencies from falling against the U.S. dollar and taxes on foreign investment in U.S. assets. Whether such a strategy would achieve its intended economic goals is debatable, as it could unintentionally strengthen the U.S. dollar and disrupt global trade dynamics.

In summary, the future of the US Dollar will depend heavily on the outcome of the presidential election and subsequent policy decisions, but the exact trajectory remains uncertain due to the complex interplay of fiscal policy, monetary strategy, and international relations.

Investors in focus ahead of election

Media attention on the election has intensified following the first debate between Democrat Joe Biden and Republican President Donald Trump, especially as Biden’s poor performance has raised concerns about his fitness to serve as president.

Democrats had hoped the convention would show unity behind their candidate. But after the debate, some in the party are calling for Biden to step down, just months before the November election. If Joe Biden succumbs to growing pressure to drop out of the 2024 election, next month’s Democratic convention will likely decide who will face Donald Trump, in what is expected to be a highly contentious contest.

Meanwhile, Donald Trump, whose age, mental capacity and temperament have also been called into question, is due to be sentenced in New York next month.

What happens if a candidate drops out after the party convention?

If a candidate drops out after the convention, the party committee would vote to select a new candidate, likely setting off a significant succession fight.

Democratic scenario:

      • Front RunnerVice President Kamala Harris.
      • Other candidates: California Governor Gavin Newsom, Michigan Governor Gretchen Whitmer and Illinois Governor JB Pritzker.
      • assignment: Democrats face the challenge of limited national recognition, making them seen as stronger contenders in the 2028 presidential election, and the convention also risks splitting the party over geopolitical issues, particularly U.S. support for Israel in the Gaza war.
    • Republican scenario:
      • candidate: Florida Governor Ron DeSantis and entrepreneur Vivek Ramaswami may be looking to appeal to Trump’s MAGA supporters, but Trump’s biggest rival, former U.N. ambassador Nikki Haley, represents a more traditional conservative wing and the nomination battle will be an ideological one.
      • assignment: If Trump is neutralized, an ideological battle over the nomination could ensue, creating chaos, as his main rival in the primary, Nikki Haley, represents traditional conservatives.

Potential impacts on businesses, the economy and financial markets

However, apart from the uncertainty surrounding the party convention, the election has yet to have a significant impact on market trends.

One factor is that voter preferences are unpredictable, as current polls suggest.

Investors are keenly interested in the policy direction of the winning candidate“Rob Howarth, senior director of investment strategy at U.S. Bank Wealth Management, said:Historically, significant policy change occurs when one party controls both the White House and Congress. Current polls indicate that we are far from such a scenario at the moment.

In addition to the presidential election, the fall elections will feature one-third of the U.S. Senate seats and all 435 seats in the U.S. House of Representatives. The outcomes of these elections could shape control of the legislative branches from 2025 onwards, potentially leading to a united or divided government scenario similar to the current one.

As November approaches, uncertainty remains about how policy will affect market trends, and investors are likely to pay closer attention to the potential impact on companies, the economy and financial markets.

Major policy issues such as taxation are beginning to take shape. The extension of provisions of the Tax Cuts and Jobs Act (TCJA) is under debate and could have significant effects on personal and corporate tax rates. The stance on tariffs, particularly on imports from China, also remains controversial.

Both candidates are expected to pursue fiscal stimulus measures but with different approaches, including tax breaks and increased spending..

The impact of tariffs on Chinese goods is also a contentious issue. The tariffs, introduced under President Trump and continued under Biden, represent a shift away from past free trade policies. Both candidates are expected to pursue fiscal stimulus measures, though the specific mix of tax breaks and spending increases may differ.

But priorities vary by political party. A Republican administration may prioritize fossil fuel development, while a Democratic administration may support renewable energy initiatives. Interestingly, market outcomes under recent administrations have not necessarily reflected these policy trends.

Elections have consequences.

Historically, elections have an impact on financial markets in the medium to long term, but this is usually limited. Economic and inflation trends tend to influence market performance more consistently than election outcomes.

It visually highlights how Democratic control of the White House and full or divided Republican control of Congress produced positive absolute returns above the long-run average returns, while Republican control of the White House and full Democratic control of Congress produced positive absolute returns slightly below the long-run average returns.

Going forward, investors should keep in mind that market trends may change leading up to Election Day on November 5, 2024. Rather than predicting the election outcome, it is important for market participants to understand the potential policy direction that will have a significant impact on the stock market. Investors should continue to focus on broader economic indicators such as growth, interest rates, inflation and corporate earnings, as they have proven to have a stronger and more direct correlation with financial markets.

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Andrea Piccidi

Market Analyst

Disclaimer: This material is provided as general marketing information for informational purposes only and does not constitute independent investment research. This information does not contain, and should not be considered to contain, investment advice, investment recommendations, or a solicitation to buy or sell any financial instruments. All information provided has been collected from reliable sources and information showing past performance is not a guarantee or reliable indicator of future performance. The user acknowledges that investments in leveraged products involve a certain degree of uncertainty and that this type of investment involves a high degree of risk, the responsibility of which is borne solely by the user. The Company shall not be liable for any losses arising from investments made based on this information. This information may not be reproduced or redistributed without the prior written permission of the Company.

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