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Ding! Ding! Ding! Ding! Ding! The closing bell has rung at 4 p.m. (Eastern Daylight Time) to mark the end of trading on Wall Street. The date is Tuesday, 5th of November 2024 and American’s are in the midst of casting their votes for one of the most consequential presidential elections of their lifetimes. Global financial markets and investors, pause and hold their collective breadths, for on the morrow, a new president will be elected – and with it – share market prosperity or uncertainty… time will tell.
The outcome of any U.S. presidential election has long been a significant driver of market profitability and volatility—not only in the United States but also in global financial markets, including Australia. In part two of this series, we explore historical U.S. election outcomes, their effects on markets, particularly in Australia, and what the outcome of this election might mean for investors worldwide.
2000 Election: The Bush-Gore Controversy
The 2000 election, marked by the contentious Supreme Court decision that effectively awarded Florida’s electoral votes to George W. Bush (a mere 537 votes or 0.009% – wild), caused significant uncertainty. The volatility was felt globally as the S&P 500 dropped sharply during the recount period. In Australia, the ASX reacted to the uncertainty, with the index declining as investors awaited clarity on U.S. economic policies.
2008 Election: Financial Crisis and Obama’s Election
Barack Obama’s historic victory came during the worst financial crisis since the Great Depression. The initial market response was one of cautious optimism, as investors expected substantial economic stimulus measures from his administration. Following Obama’s victory, global markets, including Australia’s, experienced significant gains. The ASX rose approximately 6% in the days following the election, reflecting a sense of relief and hope for economic recovery.
2016 Election: Trump’s Surprise Win
Donald Trump’s unexpected victory in 2016 initially caused chaos in global markets, including a drop of around 5% in the S&P 500 and a similar dip in the ASX. However, once investors began to digest the potential for corporate tax cuts and deregulation, markets rebounded sharply. The ASX eventually surged, driven by optimism regarding the U.S. economic outlook.
2020 Election: Pandemic Uncertainty
The 2020 election occurred against the backdrop of the COVID-19 pandemic. Market volatility intensified by the dual uncertainties of the election outcome and the global health crisis. The initial market reactions were negative; however, the announcement of vaccine developments, coinciding with Joe Biden’s victory led to a rally. The ASX climbed nearly 7% in the weeks following the election, as global markets responded positively to the prospect of the vaccine rollout and economic recovery.
2024 Election: Trump vs. Harris
Casting our eyes to the 2024 U.S. presidential election, both candidates have vastly different views on taxation and trade policy that could have far-reaching implications for financial markets.
A victory for Donald Trump may lead to short-term market increases through his advocacy for significant tax cuts, specifically for corporations and the wealthy. This could spur short-term economic growth and boost stock market performance, as seen during his first term. However, let’s not forget the phrase coined by then-presidential candidate George Bush Sr. in 1980, famously referenced in Ferris Bueller’s Day Off: ‘Anyone? Anyone? Something-d-o-o economics? Voodoo economics.’ This term criticised the prioritisation of tax cuts and deregulation without considering long-term consequences—a little bit of history repeating? Trump’s ‘America First’ approach could also bring back protectionist trade policies, with earmarked increased tariffs on China, that could potentially lead to domestic inflationary pressures and market volatility.
Conversely, a win for Kamala Harris could see her administration push for a more progressive taxation system, with increased regulations on corporations in the tech and finance sectors. Harris is also proposing a brand-new tax on unrealised capital gains for high-net worth individuals, in addition to increasing the corporate income tax rate from 21% to 28%. Higher corporate taxes could cause some corporations to relocate outside of the U.S. to a country with a more favourable tax environment. These progressive policies could raise concerns for domestic investors and expose financial markets to volatility. However, a Harris victory would more than likely lead to more cooperative international relations, potentially appeasing global markets. This could further enhance trade and investment between nations, including Australia.
As election day approaches, the resilience of financial markets will likely be tested again. History suggests that regardless of whether Donald Trump or Kamala Harris emerges victorious, financial markets will continue to adapt, recover, and thrive in response to the new political landscape. “In the midst of chaos, there is also opportunity.” — Sun Tzu (The Art of War)