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Are you wondering how the upcoming 2024 US election might shake up the stock market? With the presidential race heating up, there’s a lot of speculation about its potential impact on investment portfolios.

Historically, elections stir anticipation and concern among investors, but how much do they really influence the stock market? While elections can cause short-term volatility, their long-term effect on market performance is less pronounced than one might expect.

Factors like corporate earnings, economic indicators, and interest rates often play a more substantial role in shaping the market landscape.

Historical Impact of US Elections on the Stock Market

Analysis from the U.S. Bank, reviewing market data since 1948, demonstrates that there’s little correlation between the outcomes of national elections and capital market performance in the medium to long term.

Historical Economic Regimes and Market Performance

 

Source: usbank.com

Instead, economic and inflation trends have shown a stronger and more consistent relationship with market returns. For instance, markets have seen positive returns under both Democratic and Republican administrations. Certain divided government scenarios correlated with these outcomes.

However, the variations in market returns were not statistically significant. This means they don’t justify changing investment strategies based on election results alone.

2024 US Election Outlook and Market Implications

The potential rematch between Joe Biden and Donald Trump in the 2024 US election is stirring discussions among investors about its impact on the stock market.

Given their previous terms, a win for either could emphasise their respective policies: Trump might focus on tax cuts and deregulation, while Biden could lean towards environmental spending and possibly higher corporate taxes.

Key Sectors

Energy Sector: Trump’s victory could see a push for deregulation in energy production and a continuation of the “drill baby, drill” policy, potentially benefiting the oil industry. Conversely, Biden’s focus on renewable energy could favor companies in the solar and clean energy sectors.

Technology and Trade: Both candidates have taken firm stances against China, affecting companies with significant exposure to Chinese markets, particularly in technology and manufacturing.

Trump’s aggressive trade policies may reintroduce tariffs, impacting global supply chains, whereas Biden’s approach could see continued pressure on companies competing with China’s technological advancements.

Automotive Industry: The push for electric vehicles (EVs) under Biden has seen significant growth but with substantial costs to traditional automakers transitioning to EV production.

President Biden has set a goal that 50% of all new passenger cars and light vehicles sold in 2030 should be electric. This directive is part of a broader effort to shift the United States towards cleaner energy and reduce carbon emissions. Automakers have responded by committing tens of billions of dollars to EV development over the next decade.

A Trump administration may shift focus away from stringent EV policies, potentially easing pressure on the automotive industry.

Environmental, Social, and Governance (ESG): Trump has expressed opposition to ESG investment strategies, potentially affecting funds and investments focused on sustainability. Biden’s administration, however, has been more supportive of ESG initiatives.

How will the US 2024 Election Affect the Stock Market

Investment Strategies During Election Years

Election years often bring increased volatility in the stock market, influenced by the uncertainty of election outcomes. However, history shows that the market has a tendency to rise during these periods.

For instance, the S&P 500 has posted positive returns in 17 of the last 23 election years, with an average gain of around 7.05%​​. With this in mind, here are some strategies to consider:

  • Diversify Your Portfolio: Don’t put all your eggs in one basket. Spread your investments across various sectors that may react differently to election outcomes. This approach can help mitigate risk in volatile times.
  • Focus on Long-Term Investments: Election-related market movements are often short-lived. Focusing on long-term investment goals rather than trying to capitalise on election-induced volatility can be a more prudent strategy.
  • Consider Defensive Stocks: Stocks in sectors like utilities, healthcare, and consumer goods tend to be less sensitive to market volatility. These can offer a safer haven during uncertain times.
  • Avoid Making Emotional Decisions: It’s easy to get caught up in the heat of the moment. However, making investment decisions based on emotions or political biases can be detrimental. Stick to your investment plan and base your decisions on sound financial analysis.
  • Prepare for Volatility: The Volatility Index (VIX) tends to fall between 14 and 18 in the five months leading up to US elections, indicating elevated volatility. Setting aside some cash can help you take advantage of market dips following the election.
  • Final Thoughts

When planning your investment strategy during the US 2024 election, it’s beneficial to focus on the broader economic indicators and market fundamentals. While elections can introduce short-term market volatility, historical trends suggest that the impact is generally temporary.

Platforms like Appreciate Wealth, the best share market app, offer valuable resources and tools that simplify the process of investing in US stocks from India, allowing you to tailor your investment choices to fit your financial goals without getting caught up in the election year’s uncertainties.

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Yogesh KansalAuthor Bio: Yogesh Kansal is a Co-Founder at Appreciate, a fintech platform helping Indians achieve their financial goals through globally diversified one-click investing.

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