Quarterly Outlook
Macro outlook: Trump 2.0: Can the US have its cake and eat it, too?
John J. Hardy
Global Head of Macro Strategy
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How the US election may impact your portfolio
US Election
Saxo
In this special edition of the Saxo Market Call podcast, as Peter Garnry, Head of SaxoStrats and Equity Strategy, and our host, John J. Hardy, discuss the potential ramifications of the 2024 election on the global financial markets. The discussion explores several key concerns that may be relevant for investors and traders, with the hopes of giving a better understanding of how a highly contentious election could affect the worldwide economy.
An election for the ages?
As it gets increasingly likely that the 2024 election will be a rematch between former President Donald Trump and incumbent President Joe Biden, Hardy and Garnry discuss the big lines of what kind of election we could be experiencing. Here, they mention that it will be a battle between two of the most unpopular candidates in history. Simultaneously, the election may also feature a relevant independent candidate, Robert F. Kennedy Jr., for the first time since Ross Perot grabbed over 18% of the popular vote in 1992, underscoring the potential for significant electoral disruption.How financials impact elections
The pair ponder whether there’s any connection between the financial status of the country in an election year and the electoral result. Using equity market performance and inflation rates as proxies for the economy, Garnry notes that there is a historical tendency that a weak economy means trouble for an incumbent president in terms of getting re-elected, although he notes that the data foundation is quite thin. As a non-exact science and with a US economy that still could go either way in 2024, it remains to be seen whether this will be in favour of either Trump or Biden, but financial figures like inflation, job openings, and GDP growth are identified as key indicators to watch both in terms of presidential popularity and market performance.Will the Fed steer clear of politics?
Garnry and Hardy discuss what role the Fed will play in the election if any. After the extension of the Fed’s rate hiking cycle in early 2023, the discussion on the prospects for rate cuts from the US central bank has been one of the most prominent in early 2024. As an American recession was almost expected going into the year, rate cuts were expected to follow. But with an economy that’s holding up, the easing cycle has been postponed. The idea of a so-called no landing scenario where inflation reignites, bringing rate hike considerations back to the table, has even heated up, although rate cuts are still more likely. But in this difficult landscape for the Fed to navigate, the election only makes it more challenging. If the Fed is to cut rates, one argument goes that they would probably like to cut early to avoid any impression of political bias around election time. A conspiratorial second theory argues that the Powell Fed favours the more mainstream, “Washington-friendly” Biden, and will tilt as dovishly as it dares to increase his odds of winning.What a new president will mean for the financial markets
In judging what the US president election will mean for financial markets, Hardy and Garnry state that it may be a bit early days as we need to know the party program for either candidate, which in theory won’t be known until the candidates are officially nominated at the conventions during summer. But what is clear is that one point where the two most likely candidates differ is in terms of the US’ involvement in geopolitical stability, particularly in relation to NATO and defense spending. Here, Biden’s line will be more internationally focused on collaboration with allies, whereas Trump most likely will rein in the country’s involvement in global conflicts. This will e.g. have implications for European defense stocks.
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