News & Our Thinking

Election cycles always bring a mix of challenges and opportunities for the stock market. In this video, we explore how the 2024 U.S. presidential election is shaping market dynamics and what it means for investors.

From the impact of President-elect Trump’s policies, such as tax cuts and deregulation, to the market reactions in the financial, healthcare, and defense sectors, we dive into the key drivers behind the recent market movements. We also discuss the broader context, including geopolitical tensions, Federal Reserve policies, and the evolving economic landscape.

Transcript

Hello, I’m Ward Brown.

Election cycles bring the stock market a mix of challenges and opportunities. As the dust settles let’s take a look at how the market is reacting.

One thing that’s pretty clear is that president-elect Trump cares a lot about the stock market’s performance and does not want to disrupt it. On the other hand, he has outlined a broad road map of legislative priorities and some of those have the potential to rock the boat. Lower taxes and de-regulation garner broad business community support, but other initiatives, such as the increased use of protectionist trade policies like tariffs and the deportation of large numbers of undocumented low-wage workers, are more controversial.

Still, in the short time since the vote, we’ve seen some typical Trends and some outsize movement. The Financial and Healthcare sectors often respond sharply to election results, and they have again this time around. Banks in particular have been standout winners with the expectation of looser regulation in capital markets activity. The bank index is up around 40% this year and it’s taken back all the losses from the collapse of Silicon Valley Bank.

Cyclical industrial and consumer companies have also done well on optimism around hopes for increased economic growth.

As Trump’s cabinet starts to take shape, early selections for various roles have shaken things up a bit. Robert F Kennedy’s nomination as head of Health and Human Services is weighing heavily on healthcare stocks, especially in the pharmaceutical industry. Similarly, packaged food companies have been under some pressure.

We also have the newly formed Department of Government Efficiency, led by Elon Musk and Vivek Ramaswamy. Their pledge to increase scrutiny on federal contracts has weighed on defense companies and other government services companies.

The stock market did have a remarkably smooth ride during Trump’s first year in office in 2017, but today’s conditions are a bit more complicated. Geopolitical tensions, like China and Taiwan, and the conflict in the Middle East, the ongoing war in Ukraine, have created a more contentious global environment.

On the other hand, we do have strong corporate earnings and taxes could come down further. On the other side of that, the market’s pretty expensive and prices are still a problem. We also have all that government debt still out there.

While elections can create short-term market volatility, long-term investors benefit from focusing on the fundamentals rather than any political headline. A key question for investors is whether we can generate stronger economic growth despite the Federal Reserve’s recent commitment to keep interest rates higher for longer to combat persistent inflation that’s sticking around.

Platitudes aside, the passage of legislation is much more of a slog and ultimately politics are just one piece in a complex global market, and it’s always shaped by a lot more than the outcome of a single vote.

Thanks very much for watching.

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