Shifting tides: How the 2024 US election could shape capital markets

As the U.S. November elections approach, market participants are closely watching potential impacts on the economy and sector performance.

Both major political parties are expected to avoid austerity, likely resulting in continued fiscal deficits and increased U.S. Treasury debt, which will influence economic growth and inflation.

While the election outcome may not provoke significant systemic changes, shifts in regulation and tax policy are anticipated. The political landscape is characterized by low yields on intermediate and long-term Treasuries, tight credit spreads, and high equity market valuations, indicating instability.

Key candidates include Republican nominee Donald Trump, known for tax cuts and deregulation, and Democratic nominee Kamala Harris, focusing on lower taxes for individuals under $400,000 and increased subsidies, both of which could expand fiscal outlays and deficits. Despite potential partisan government dynamics affecting legislation, significant policy changes appear unlikely due to narrow margins in Congress.

Increased government spending could stimulate the economy but may also lead to inflationary pressures, challenging future rate cut possibilities by the Federal Reserve. Current portfolio strategies emphasize quality assets and minimizing exposure to widening spreads, positioning for market volatility amidst the electoral environment while seeking prudent duration management as the economic landscape evolves.