Fisher Investments Reviews the Impact of the 2024 US Election

Transcript

Ken Fisher:

Almost anything that I say about politics offends somebody. And that's more true today than it was 20 years ago, because America's ideological views are more polarized. And that's not only true about America. It's actually true about most countries outside of America.

Interviewer:

Okay, Ken, we're going to turn to you now. Looking at politics, there are a number of elections around the world in 2024, including the US, of course. How do we think the 2024 US election will impact equity markets? Are there other major elections or geopolitical happenings around the world that you're watching for material market implications?

Ken Fisher:

Almost anything that I say about politics offends somebody. And that's more true today than it was 20 years ago, because America's ideological views are more polarized. And that's not only true about America. It's actually true about most countries outside of America.

Secondarily, we're going to elect someone president of the United States. And the fact of the matter is, whoever we elect, not everybody, but overall we will like better than we thought we did when we started the process. We always get a winner. Now, sometimes we get really excited and think the guy is great. I say guy because they always have been to date.

Sometimes we think a person's lousy when we elect them, but less lousy than we thought when we started the process. Now we're early in the process. It's almost certainly, but not certainly, going to be President Biden or former President Trump.

The dynamics of this, in history, work that people tend to view Republicans as more pro-business, anti-big government, anti-regulation. They tend to view Democrats as more pro-regulation, pro-big government, less pro-capitalism. So in years when we elect a Republican, the market tends to do better than in years when we elect a Democrat, as people get hopeful that that person will do better. In the inaugural year, that flip flops. And this is the thing we've written about many times before.

We'll cover later in the year in more depth, called "the perverse inverse," which is that that flip flops in the inaugural year. Republican's inaugural years aren't so good as people come to realize they really can't do all that much. That's pro capitalism, anti blah blah blah blah blah. And the Democrat can't do as much either. People don't believe that today, because what people believe today is it's their way or the highway. If we elect that guy, it's got to be terrible. If you don't elect my guy, it's terrible. If you elect my guy, it's going to be okay.

The fact of the matter is, politics is moving more and more toward gridlock all the time in America and around the world. Whatever we do in this election, for example, senatorially the map is very well structured for Republicans. That doesn't mean the Republicans are able to take advantage of it. In sequential elections over time, the Democrats have gained a financial advantage over the Republicans and this cycle will be bigger than ever in that regard. But the map favors Republicans because you've got places like West Virginia, Montana, Ohio, where, for example, Donald Trump has been very strong and you've got a somewhat vulnerable incumbent.

Although I would say, take in Montana—a state where Trump dominated in 2020 and will be very strong if he's the nominee in 2024, Jon Tester is not easy to beat as a Democrat. It's real possible that the Republicans don't take the Senate. It's possible they pick up maybe 3-4 seats net. But if they have 3-4 seats net, you still can't get much through the Senate.

That's my point. It's possible the Republicans gain a couple of seats in the House, and it's real possible the Democrats take the House. Whoever is elected president in 2025, they won't be able to do very, very much. That's the point. And that goes on around the world.

If you look overseas, gridlock looks different than it looks in America because we have a simple two-party system, and most of the rest of the world is parliamentary with many, many, many parties. But they've all been—not all, I won't to go that far— they've mostly been bifurcating ideologically the same way we have. And you can't put easy coalitions of people that agree together into majorities to pass sweeping legislation. They'll be able to create coalitions. It's just a coalitions will be among people who disagree on everything, so they can't legislate anything.

The fact of the matter is, you take some of these countries like the Netherlands. It takes forever to build a coalition. And then now, and then it's weak. But remember that markets like stability of legislation and rules and property rights. They like stuff not changing a whole lot because people fear big changes. And the more big changes come down the pike, the more it scares people that after getting them and them and them, we're going to come and get you. And people don't like that.

And so political risk aversion from increased legislation in America. All material big legislation happens in the first and second years of president's terms. The history of that is overwhelmingly sweeping. And so from that—but not in third and fourth. It's one of the reasons that third and fourth years are so consistently positive, particularly third years in the shift from first and second to gridlock-related—like absolute or relative gridlock— legislative quiet. That feature will still perform well in 2024.

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