Our View of America’s Election and Markets

Note: MarketMinder Europe is non-partisan. We prefer no party nor any candidate and assess events for their economic and market impact only. Stocks are party-blind, in our view, rendering partisan bias a major investing pitfall.

The results are in! Mostly. With a few states still counting, Donald Trump has passed 270 electoral votes, confirming him as America’s 47^th president.^[i] Congressional counting continues, but with his Republican Party picking up four seats thus far, he will have at least a small Senate majority.^[ii] The House of Representatives could go either way, but we think it will probably remain Republican with a similarly thin margin to the present, leaving little room for major legislation to pass—as has been the case over the last two years.^[iii] Stay tuned as this crystallises for our assessment of how politics likely affects markets next year. For now, we think the chief factor for markets is this: Uncertainty is already falling, a tailwind we think is likely to propel stock markets globally through yearend.

In our view, this phenomenon, which our research finds is regular and consistent surrounding presidential elections, has nothing to do with the winner’s personality or party. We think it is a simple effect of voters’ standard election processing. Our research finds markets are party-blind, with no preference for Democrats, Republicans or any candidate. We find they care about policies, not personalities, and whether legislative risk is higher than expected. Falling uncertainty on this front has aided bull markets (long periods of generally rising equity prices) under both parties, whilst sweeping new legislation has contributed to bear markets (prolonged, fundamentally driven broad equity market decline of -20% or worse) under both.^[iv] But investors aren’t neutral, in our experience, which can tee up certain sentiment patterns.

Political polling consistently shows something like 40% of the country leans Democratic and 40% Republican. Commentators we follow on both sides warn of the economic and market consequences if the other side’s candidate wins, casting their agenda as a net negative. We saw this in spades this time around, with Republican-leaning commentators we follow warning Vice President Kamala Harris’s tax agenda would affect markets negatively and Democratic-leaning commentators issuing similar warnings over Trump’s tariffs and the prospect of higher deficits. Given we find media sentiment both amplifies and reflects broader investor sentiment, we think this is a fair gauge of investors’ sentiment at election time. So when it became clear overnight Trump would win, we think it stands to reason the result was immediate falling uncertainty for the 40% of Americans preferring him. The clear result and apparent popular vote victory likely delivered this sooner than many anticipated, perhaps adding to relief.^[v]

But to the extent headline chatter reflects worries amongst the 40% preferring Vice President Kamala Harris, this fear likely lingers in the election’s immediate aftermath. For them, we think uncertainty is likely to fade more slowly as House and Senate results solidify and Trump selects his cabinet. As the new administration and Congress shape up, we think it should become clear he won’t be able to accomplish as much as commentators on both sides presume. The reality that America’s constitutional checks and balances mean the president can accomplish very little on his own will likely sink in gradually, and perhaps subconsciously, helping lift sentiment and global stock markets as 2024 winds down.

Whilst this is an American phenomenon, we think it is likely to reap global benefits. Not only are US markets nearly three-quarters of global market capitalisation and highly correlated with the rest of the developed world, but we see ample room for global uncertainty over President Trump to fall.^[vi] Headlines we have seen across Europe and Asia warn his proposed tariffs and fiscal policies will ripple through international economies and markets. In our view, this likely contributed to European markets’ negativity Wednesday.^[vii] But as the limitations to presidential power become more apparent, we think relief is likely to propel stock markets worldwide. It may already have begun as European markets mostly followed US gauges with gains Thursday.^[viii]

US stocks jumped both Wednesday and Thursday post-vote.^[ix] We advise against reading into this. The initial reaction could very well be ahead of itself, as our analysis finds post-election returns tend to moderate: Since 1925, when the election doesn’t occur during a pre-existing bear market, the US-orientated S&P 500’s average price return in USD between the election and yearend is 3.6%.^[x] Averages blend extremes and aren’t predictive, in our view, so 3.6% is neither a target nor a ceiling, but we think keeping measured expectations is wise, always.

The same wisdom applies to sector and country trends, in our view. Short-term reactions don’t foretell what will persist over the coming months and year, based on our research. Consider 2016: We saw many suggest Trump’s combination of America-first rhetoric and tariffs would favour US stocks over non-US. Yet eurozone and non-US stocks outperformed US stocks from his election through 2017’s close.^[xi] We aren’t saying a repeat is coming—just that, in our view, it is an error to extrapolate from rhetoric to market reality.

Congressional results are another opportunity for falling uncertainty, in our view. The Senate will flip from a Democratic to Republican majority. Not by much, but we don’t know the final margin yet. So far, Republicans picked up Pennsylvania, Montana, Ohio and West Virginia.^[xii] With very little split-ticket voting in which voters pick a different party’s Presidential and Senate candidates, we see a good chance they take Nevada, though Arizona appears likely to remain Democratic. A 54 – 46 Republican majority is a realistic possibility, in our view. This would be bigger than the Democrats had under Biden and slightly increased from Trump’s majority in 2017, but it isn’t a huge margin, and the degree of intraparty gridlock isn’t yet clear.^[xiii]

Meanwhile, the House of Representatives doesn’t appear to us to be swinging hard either direction. Republicans are closer to a majority for now, but neither side has net gains as we write.^[xiv] Given the close margins in the still-undecided seats, recounts and runoffs seem virtually assured to us. The chamber could go either way, but our analysis of the remaining seats finds the majority will probably be narrow.^[xv] If the Republican Party wins slim edges in both chambers, it wouldn’t technically constitute political gridlock, which we think is usually a positive that prevents sweeping change altering the rules businesses operate under. But narrow majorities are the next closest thing to it, in our view, as internal dissent can kill major bills. Regardless, as clarity gradually arrives, we think it should contribute to markets’ continued relief.

Given the Congressional question marks, all the talk in headlines we follow of what a Trump presidency and Trump policies mean for markets is premature. His campaign chatter sets the tone, with big hopes on one side and warnings of trouble on the other, according to our observations. We have seen warnings of sweeping tariffs and hopes for tax cuts. But most of this hinges on Congress, which is an unknown whilst the House remains undecided. Therefore, we can’t know now which provisions of 2017’s tax reform will get extended and whether tax rates will fall further. We do see from our vast historical research, however, that tax changes have no preset market impact—a crucial point to bear in mind for UK stocks, too, in the wake of last week’s Budget.

As for tariffs, we think it is premature to presume Trump’s proposed blanket 10% levy on all imports will become reality. Whilst US trade law grants the president authority to enact some tariffs unilaterally on national security and other similar grounds, the provision is narrow. It is difficult for us to see justification for tariffs on Germany, Britain or Australia under national security or currency manipulation grounds, for example. Presuming courts would block an attempt to apply targeted tariffs to tens of thousands of individual goods, a new, blanket tariff would likely require Congress, rendering it uncertain. Regardless, we think these are two areas where investors will likely welcome clarity as it gradually arrives.

Whilst stocks greeted Trump’s win warmly, bond markets initially seemed less pleased. 10-year US Treasury yields surged, underscoring the common view that a Trump presidency will come with higher debt and inflation.^[xvi] Here, too, we wouldn’t read much into it. Bond markets aren’t immune to sentiment swings. As the dust settles, we think pre-existing trends likely continue. And indeed, after the jump the day after the election, 10-year Treasury yields have reversed almost all the day’s spike.^[xvii]

Again, we think where stock and bond markets go in 2025 will depend on a host of factors, including the degree of political gridlock in the US and globally—not to mention traditional economic and sentiment drivers throughout the developed world. The multitude of factors affecting returns aren’t yet in focus, so stay tuned for our thoughts on next year. But in our view, it is premature to weigh that today.

In the meantime, we see global stock markets are likely to rise through yearend at least as Congress and the cabinet take shape and uncertainty keeps falling. Volatility is always possible, for any or no reason, but overall, we think most drivers point positively now.