It seems the US Presidential race has begun! The election is scheduled to take place in November, so it will be in the headlines for most of the year (and, if the last election is anything to go by, longer than that!).
It seems likely that the 2024 election will be a repeat of the 2020 race, except that the two contenders will be older (but not necessarily wiser). If it is a two horse race between Trump and Biden, there has to be a significant possibility of a Trump victory.
We are, at least, in the fortunate position of knowing what both candidates will be like as President, so it’s a little easier to predict how they might act.
This isn’t a political blog, so I will ignore my thoughts on Trump’s politics, and focus on what the impact may be on markets.
One of the most important things to recognise is that politicians don’t have as much of an impact on markets or asset values as they would like to think. I often think that markets make progress, despite politicians. We’ve had some pretty useless politicians recently, but the markets have mostly ignored them! It’s certainly true that there isn’t a direct link between the state of the economy and the state of markets, and if politics is one of several influences on the economy, its impact on market values won’t be huge.
But, what might we expect from a Trump presidency. It seems likely that “America First” will be part of his strategy, along with a more aggressive foreign policy generally. It also seems likely that there will be deregulation and that US government spending will reduce. His policies are also likely to be tougher on immigration, and there’s likely to be a move away from the tax subsidies for green industries of Biden’s Inflation Reduction Act.
Much of this is likely to be favourable for US stock markets, with US companies able to benefit from their large internal market. However, it may make life more difficult for companies based outside of the USA. It’s also worth noting that the US is pretty self-sufficient in oil, unlike Europe and Japan. A more US focussed approach is unlikely to consider this a concern, and US foreign policy could, therefore, have an impact on inflation and economics amongst its allies.
There is general agreement that trade barriers slow down global economic growth, and they are likely to act as a headwind for economies and markets. At the same time, if the US jobs market remains tight, a reduction in immigration is likely to increase the cost of labour. This may be positive in the long run, encouraging, potentially unintentionally, greater productivity through automation. But, in the short-term, higher inflation, and, therefore, higher interest rates in the US might be likely as a result. This is likely to result in higher inflation in the rest of the world too, and, therefore, higher interest rates.
Immigration is likely to continue to be a political issue, regardless of who is in power, and it does seem likely that there will be companies who will benefit from the attempts to reduce immigration – those involved in the business of security might expect to see more demand for their services.
If the US reduces its subsidies for the green economy, it is unlikely that the rest of the world will do so. The levels of scepticism in the USA about climate change and its causes are unusual – the rest of the world appears to be certain about climate change and it seems unlikely that green incentives will be removed. The conclusion is that the US may fall behind the rest of the world in this area, and that companies involved in the green economy may develop better elsewhere.
It does seem that a Trump presidency might have an impact on British retirees – one outcome of the expected policies is likely to be that inflation will be higher than otherwise, and interest rates might also be expected to remain elevated. It does seem, however, that there will be opportunities to invest and make a good return.
At this stage, this is all speculation. Trump has to actually win the Republican nomination, be allowed to run and then win. And if he wins, he would then have to enact the expected policies and those policies would have to have the impact we are anticipating. There are far too many “ifs” for this to be a reason to act.
We expect that the fund managers we recommend will be considering the potential of a Trump presidency into their decision making, and we will be giving this thought at our Investment Committee meetings. But we’ll be considering a lot of other matters too, many of which will be more important than who will be the next President of the USA, and we won’t be overemphasising the importance of one issue, just because it is popular in the media.
Philip Wise | email@example.com
Managing Director and Chartered Financial Planner