Harris or Trump, America’s election is sweet music for stocks
AN ASSASSINATION attempt; a late candidate swap; campaign hacking; flip-flopping polls – what else awaits in 2024’s wild US election?
Investors worldwide fear the worst. But there is good news: Stocks likely will not suffer the drama. Falling election uncertainty should power global stocks till the year end, lifting the Straits Times Index (STI).
In February, I showed you that US election years boost stocks. America’s S&P 500 rose in 83 per cent of them since 1925, averaging 11.4 per cent gains in US dollars. This bullish force extends globally: US stocks’ correlation to developed markets elsewhere is 0.83 – strong, considering 1.00 means identical movement and -1.00 the exact opposite.
US stocks’ correlation with Singapore is slightly weaker, at 0.60, but they still move together the vast majority of the time.
This election has history-making twists. It feels wild. Beyond the events, the candidates’ personalities and colourful sound bites – often unflattering – steal the spotlight.
But stocks look past this, focusing on what counts: Uncertainty – higher now – will fall. There will be a winner emerging soon, and markets will rally around that.
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This is a strong tailwind. Stocks hate question marks. They rattle nerves and discourage risk taking.
Early in most US election years, unknowns abound. Myriad candidates typically clog the party primary races. They play to their bases – both parties’ extreme fringes – touting extremely scary views.
Hence, elevated uncertainty usually stalls markets early in election years, when US returns average just 2.8 per cent in the first half since 1925.
But in the typical second half, uncertainty melts. Stocks love that.
Rowdy party primary races bring nominees. Then come running mates. Party conventions reveal policy platforms. Rhetoric moderates as both sides court centrist independents. State polls illuminate each candidate’s paths to victory.
Meanwhile, with Congress busy campaigning, all legislation stops. So markets need not fret about sudden policy disruptions. They love it!
The S&P 500 averages 9.2 per cent in US election years’ second halves. Fun fact: This includes 16 years with positive first halves. Of these, the second half rose all but once in history, in 1948.
We got that positive first half this year, amid unusually low early uncertainty. A Joe Biden-Donald Trump rematch looked destined. Two exceptionally well-known men. With scary primary noise absent, stocks shined.
Falling uncertainty
But then Biden’s late-June debate stumble amped up electability panic. The abhorrent assassination attempt on Trump followed.
Then Biden’s exit and Vice-President Kamala Harris’ grand entrance – along with questions about her relatively unknown potential platform. Early rumblings about Harris’ viability stoked talk of August’s party convention becoming a multi-candidate cage match. Uncertainty rose.
But it fades fast now. Harris quickly attracted endorsements and donors, secured the nomination and picked her running mate. Her policy platform will now take shape. Clarity is coming.
Polls have wiggled Harris’ way lately. But it is still early, in her honeymoon phase – which may unravel. Regardless, the two candidates’ paths to victory are coalescing.
Note: America is not a direct democracy. The Electoral College determines the outcome, casting population-weighted votes based on winner-take-all state-level results.
Only six of 50 states seriously look like they are up for grabs. The true swing states are: Arizona, Georgia, Michigan, Nevada, Pennsylvania and Wisconsin. They will decide the victor.
Polling in all six swing states is very close now. Harris has levelled Trump’s earlier leads in Pennsylvania and Georgia. But the real contest comes now. Much can change.
Regardless, we will have a winner soon, making stocks happy late in the year. Blessed clarity will make markets party.
But questions remain. What might Harris do on taxes? Regulation? Would Trump fully politicise the US Federal Reserve? Touch off more tariff tiffs, whacking Singapore’s huge shipping and international trade interests?
Slow down. It is a mistake to overrate any president’s power to act unilaterally. Stocks’ 2025 political impact hinges on the whole government’s makeup – including both chambers of Congress.
If golden gridlock continues, squashing market-menacing bills, stocks should thrive. If not, risks may emerge. This election will determine that as well as both chambers are very close currently. Still, clarity will come.
For now, simply sit back and enjoy late 2024’s falling uncertainty, whose tailwinds should lift the STI.
Singapore’s high correlation with US stocks shows that what lifts America helps the market here too.
Investors should diversify globally to work around the dominance of financials in the STI, and relative lack of tech and tech-like names in communication services.
But America’s election will be a rising tide, lifting most boats.
The writer is the founder, executive chairman and co-chief investment officer of Fisher Investments, an independent investment adviser serving both individual and institutional investors globally
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