How the 2024 U.S. Presidential Election Could Impact Your Investments: Insights from Morgan Stanley
As the U.S. gears up for another presidential election, investors are fervently speculating how the outcome might sway the financial markets. However, Morgan Stanley analysts argue that the business cycle, rather than the election itself, will wield more significant influence over market behaviors.
Morgan Stanley issued a note to clients on Monday, emphasizing that while election years are often flooded with conjectures and forecasts, historical data reveals a murky relationship between elections and market performance. “Our cross-asset strategy team’s review of past election periods reveals no consistent pattern of market behavior, even when considering varying election and macroeconomic conditions,” the bank stated.
The note also points out that the polarized nature of the current electorate adds another layer of uncertainty, making it less likely that investors will base their near-term strategies solely on election results.
However, Morgan Stanley does highlight that certain sectors could experience more pronounced impacts based on the policy differences between the two major political parties. For instance, energy and telecom sectors might face challenges under the Democrats' plan to extend tax breaks, while the clean tech sector could benefit from sustained investments under the Inflation Reduction Act.
Additionally, Morgan Stanley advises keeping an eye on the U.S. Treasury yield curve and the U.S. dollar. A Republican win could potentially lead to higher tariffs, resulting in a steeper yield curve as shorter-mature bonds yield less. The U.S. dollar, often regarded as a safe haven, might strengthen if former President Trump wins, despite his historical criticism of a strong dollar. This could occur due to potential tariffs and heightened geopolitical uncertainties, which might prompt more dovish central bank policies overseas.
While elections certainly capture public attention, Morgan Stanley believes that the dynamics of the business cycle will play a more pivotal role in shaping market trends in the upcoming months.
Breaking It Down: How This Affects You and Your Finances
Election vs. Business Cycle: The key takeaway here is that while elections are significant events, they are not the sole determinants of market behavior. The underlying business cycle—economic expansions and contractions—has a more substantial impact on the market.
Sector-Specific Impacts: Depending on who wins, certain industries could either flourish or face challenges. For example, energy and telecom might struggle under Democratic policies, whereas clean tech could thrive.
Interest Rates and Currency: A Republican win could lead to higher tariffs, impacting bond yields and potentially strengthening the U.S. dollar due to increased geopolitical uncertainties.
In simple terms, while the elections are important, other economic factors will likely have a more significant impact on your investments. Therefore, it’s crucial to stay informed about both political developments and the broader economic landscape.