With former President Donald Trump’s 2024 primaries sweep making a rematch with the incumbent President Joe Biden more likely, Wall Street and China analysts are already assessing the former president’s potential return to the White House and charting their probable reactions.
A few investors have started playing the odds to see who will win, although there are many variables to consider while predicting the effects of the 2024 U.S. presidential election on the stock market, bond yield, and currency exchange rate. A majority of investors also believe that, in the long run, market factors such as Federal Reserve policy, the business cycle, and corporate profits will be more important.
Yet the U.S. elections are attracting significant attention among analysts, given the unusually early clarity on the likely candidates, and the unusual matchup between a sitting president, President Biden, who is trailing in the polls, and the former president he defeated four years ago.
“The 2024 election could be a major market event given the policy differences between the likely candidates,” Goldman Sachs, the multinational investment bank and financial services company, said in a client note viewed by The Epoch Times. “While the experience of 2016 and 2020 suggests it may be too early for the election to have a major effect on markets, given that Trump and Biden are both well-known quantities, the election could affect markets earlier than in prior election years.”
The policy dynamics surrounding the 2024 U.S. election are abnormal. For one, the sitting president’s trailing in the polls and a former president’s seeking reelection mean that President Biden is more likely to implement measures that would benefit him, even if it means compromising on issues he would ordinarily oppose.
But if the White House becomes open to big policy concessions, Republican lawmakers may seem less inclined to announce new policy measures, which, along with his significant wins in Iowa and New Hampshire, could provide President Trump clout among Republicans, according to Goldman Sachs.
According to the investment bank, although the election’s policy ramifications are clear, it’s unclear what issues the candidates will focus on in the lead-up to the election. For instance, on economic policy, President Trump is expected to prioritize tax cuts, particularly for companies, but President Biden may attract support by suggesting benefits of expansion supported by increased taxes on businesses and the rich.
That aside, President Trump is less likely to stress another key idea that might be divisive—a 10 percent tariff across the board—but if he does, it would give a clear signal that he intends to impose it if elected, Goldman Sachs noted.
Consequently, Goldman Sachs analyst Ben Snider said in the note that although macro and micro drivers other than politics are more likely to move stocks in the coming months, some election-year equity market patterns are worth keeping in mind.
Split Control
Goldman Sachs is not an outlier in terming the November election unusual.“The coming election cycle will likely be one of the most interesting in recent memory as a highly polarized electorate takes to the polls on Nov. 5,” Gennadiy Goldberg, head of U.S. rates strategy at the New York-headquartered TD Securities, wrote in a note on Jan. 30.
He also said he expects that Republicans will “recapture” the Senate and that President Trump will be reelected president but that “split control” will exist between the Senate and the House.
If President Trump wins and succeeds in making his 2017 tax cuts permanent, reduced taxes may provide a wide lift to equities markets, but worries of a renewed trade war with China might offset some of those gains, according to Mr. Goldberg.
He noted that tax cuts might also raise concerns about rising budget deficits and affect Treasury bond prices by raising the term premium—a measure of the compensation investors want for owning long-term bonds.
Credit rating agency Fitch warned on Jan. 22 that it expects U.S. budget deficits to remain high this year and that the fiscal policy and governance implications of the U.S. presidential elections will be critical to the country’s sovereign ratings.
Last year, Fitch lowered the U.S. government’s highest credit rating from AAA to AA+, citing budgetary deterioration and repeated last-minute debt ceiling discussions.
Hence, although the fair value of a 10-year Treasury is about 3.5 percent, according to Mr. Goldberg, a sharp upswing in deficits and softer economic landing could ultimately keep rates elevated.
“Expectations of sustained higher deficits could slow any widening in [swap] spreads,” he wrote.
Geopolitical Effects
The upcoming U.S. election could be a pivotal moment for U.S.–China ties too, based on the fact that bilateral relations have been strained over the past several years.“For China, the biggest uncertainty in 2024 is whether Donald Trump will return to power in the U.S.,” Raymond Yeung, chief economist at Greater China, ANZ, wrote in a Feb. 5 client note viewed by The Epoch Times.
“We know that both Democrat and Republican parties will be tough in their stance towards China.”
According to TDS Securities, as military relations between the two nations resumed, the Biden administration tried to repair U.S.–China ties. Still, tensions between China and Taiwan remain high with the election of the Democratic Progressive Party’s Lai Ching-te, which might also strain U.S.–China ties.
President Trump’s relationship with China has also been difficult, with numerous rounds of trade conflicts resulting in the imposition of fresh tariffs. He has already promised to enact bigger and broader tariffs than he did in his last term if he’s elected, including a 60 percent tariff on Chinese goods and a 10 percent tariff on all imported goods from all countries.
Help to Ukraine and Israel is also on the agenda, with President Biden advocating greater support and Republicans generally wanting to cut funding.
Nevertheless, Goldman Sachs stated, “Given the significant differences in potential policy outcomes, one clear implication of the election is that volatility may be higher, and the distribution of outcomes will likely look wider.”
