US elections 2024

It is not only the US presidential elections that will take place on 5 November. On the same date, the people of America will also decide on the composition of the country’s parliament, namely the US Congress. This will determine whether a Democratic or Republican majority will govern the bicameral parliament made up of the Senate and the House of Representatives. It is therefore not only the question of Trump or Harris that is important for economic and foreign policy as well as legislation. For the financial markets, and the equity markets in particular, however, a look back at history shows that developments in terms of economic growth and corporate earnings are far more pivotal than the outcome of the US elections.

In light of the fact that the majorities in both chambers of the US Congress are also to be redefined, it is currently interesting to analyse the differences in the economic policy approaches between America’s two major parties. It should be noted that the detailed economic policy agenda will only be drawn up after the elections or even after the White House’s new incumbent takes their place in the Oval Office, meaning that it may still change. Among other factors, this may be due to the exact shape that the government team takes as well as the final composition of important committees within the US Congress.

Tax policy is of particular importance this time around, as the massive cuts in income and corporate taxes passed by Donald Trump in 2017 and the Republican majority in Congress at that time are set to expire at the end of 2025. These cuts have had a very positive effect on US economic growth and corporate earnings in the years since their introduction. The Republican party is therefore in favour of continuing the policy of low taxes, with the budget effects of this policy being compensated for by lower government spending, especially on wind and solar projects, and by tariff hikes. The Democrats, by contrast, are in favour of tax increases for wealthy Americans as well as higher corporate taxes, which would likely reduce growth in corporate earnings and in the economy. Traditionally, the Republicans tend to support traditional, i.e. fossil, energy firms, a fact that would by no means be disadvantageous for the security of US energy production owing to increased investments in oil and gas projects. The Democrats, on the other hand, want to continue investing in alternative energy and providing subsidies and government spending for solar and wind power, a policy that has significantly increased US national debt over recent years. The Democrats also appear more determined with respect to the possible reduction or control of drug prices, a fact that also explains the pressure on the valuations of pharmaceutical companies that has been observed in recent years.

There are also clear differences when it comes to both foreign and defence policy. In view of the technological and military threats posed by China, Iran and Russia, the Republicans are in favouring of ramping up defence efforts. In order to keep control of the budget, higher defence spending could be offset by cuts in other government expenditure, including subsidies for alternative energies. In terms of trade policy, however, the additional trade tariffs planned by the Republicans appear less positive for the economic growth of Asia and Europe, with US firms potentially winning additional market share through any tariff increases. Traditionally, Republicans have been against stronger regulation. This is true with respect to both the US tech titans, which are becoming ever more dominant due to artificial intelligence, and the financial sector, even if no precise details have yet been finalised. Finally, the plans of both parties and their presidential candidates differ markedly on the issue of immigration. Illegal border crossings into the US have increased by more than 300% under President Biden, which is why the Republicans would like to limit them. While this is understandable, this could lead to less available workers for the agricultural and construction sectors and impact the wages of the Americans active in these industries, which might possibly push up both consumption and inflation. In addition, if we take a look back at how US equities have fared under Republican and Democratic presidents over history, it can be seen that performance depends less on the governing party than on the issue of whether there was a recession during the respective term of office. For the financial markets, the economy is more important than the political party leading the US government.

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_{This publication is intended for information and marketing purposes only, and is not geared to the conclusion of a contract. It only contains the market and investment commentaries of Maerki Baumann & Co. AG and an assessment of selected financial instruments. Consequently, this publication does not constitute investment advice or a specific individual investment recommendation, and is not an offer for the purchase or sale of investment instruments. The future performance of investments cannot be inferred from past price performance. In other words, the value of investments may increase but may also decrease, and the investor may be required to make additional payments for certain products. In certain circumstances, figures may refer to reporting periods of less than five years, which could reduce their validity. Predictions for the future are always non-binding assumptions. Figures presented in foreign currencies are also subject to exchange rate fluctuations, which can affect their performance. The information in this publication is in no way to be understood as an assurance of future performance. Maerki Baumann & Co. AG does not provide legal or tax advice. In addition, Maerki Baumann & Co. AG accepts no liability whatsoever for the content of this document; in particular, it does not accept any liability for losses of any kind, whether direct, indirect or incidental, which may be incurred as a result of using the information contained in this document and/or arising from the risks inherent in the financial markets.}

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Editorial deadline: 5 September 2024

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