US Elections: How Biden and Trump could impact markets

In January, we wrote about What could go right in 2024? and highlighted 2024’s busy election calendar. Elections made the list because governments may be more inclined to reduce taxes and spend more, in an effort to win over voters.

The November 2024 US elections are a long way off but with the US Presidential nominees now set, we’re starting to think about the future outcomes and market scenarios. Given the sharp policy differences between the two political parities the election outcome could have profound political, economic and market implications – but this is also dependent on the scale of the candidate’s victory. These are our thoughts and what we’re watching:

2025: Expect a deluge of legislation

In the past decade, presidents have moved to enact their flagship policies early in their term. This is because there’s a risk of the House and Senate changing in the ‘mid-term’ elections two years later. In addition, political parties tend to stop working to pass legislation or approve new appointments in the run up to elections. For example, Donald Trump’s key policy of tax cuts was delivered in 2017 and reduced the headline rate of corporate taxes from 35% to 21%. President Joseph Biden’s Infrastructure legislation came in 2021 and the Inflation Reduction Act in 2022. These are examples of key policies that have influenced the US economy and markets. 

What does this mean? There’s a narrow window for legislation to be passed in the US. Regardless of who wins, we expect a deluge of new legislation in 2025 and we would expect both candidates to continue spending and borrowing.  

If Biden’s Back

We’d expect a Biden victory to reinforce the existing agenda of The American Jobs Plan – investment in infrastructure, transportation, and manufacturing, alongside a focus on building alliances abroad.

Regulation of technology companies and artificial intelligence could be a new area of focus. So far, the European Union has been taking more significant actions to regulate technology companies than the US. We could see this change, as artificial intelligence impacts more areas of society. Within the election itself, the ability to create fake videos, images and voices could have a profound impact. 

Immigration is also likely to be high on the agenda, as it’s a key political issue. Biden recently negotiated an agreement on immigration with the US Senate. However, the House of Representatives has declined to consider it citing that it’s too close to an election. If the House of Representatives doesn’t take any action on the current proposal, Biden will want to do that quickly at the start of his next term.

If Trump is Triumphant

We expect to see large tax cuts for companies and individuals if Trump prevails. The real estate sector would likely be a significant beneficiary, as this would support Trump’s personal business interests. Reducing corporate taxes would boost company profits, so we’d probably see an initial boost for stocks. Consumer spending power would increase as well. Longer-term, though, this could lead to higher inflation. 

Trump has made no secret of his disdain for higher interest rates. It’s not surprising, given that higher interest rates create a more challenging environment for property developers. Jerome Powell’s term as Chair of the US Federal Reserve ends in 2026 and the next President would have to nominate a successor. Trump might replace Powell with someone more likely to reduce interest rates. There is a longer-term risk that if Trump were able to appoint several individuals to the Federal Reserve board willing to take direction from him, then monetary policy could cease to be fully independent. A scenario where the market loses confidence in US monetary policy is the biggest risk to financial markets. We might see interest rates reduced in the short term, but combined with tax cuts this could lead to higher inflation in the long run.

Foreign policy would also see change under Trump, with the United States pulling back from international diplomacy. Laws have been changed to prevent Trump from withdrawing the US from NATO (North Atlantic Treaty Organisation), a joint defence agreement created after the second world war. He could undermine it in other ways, such as not providing funding or not appointing representatives to interact with the organization. With the conflict between Ukraine and Russia ongoing, this would weaken Europe’s position. 

What does this mean for investors?

Markets tend to look through election ‘noise’ in the run-up until the outcome is better known. The US economy is in a strong place as a result of four years of spending and investment. It’s an increasingly insulated and self-sufficient economy. We haven’t changed our investment approach in anticipation of the election. If Trump is re-elected then we expect increased volatility and unpredictability. But, even with a Biden continuing for a second term we’re still likely to face a volatile environment. 

There’s also one potential silver lining: there's been greater divergence in economies recently – most notably in economic growth and inflation. If this trend continues, it could make it easier to have diversification within portfolios. 

The views expressed in this article should not be taken as a recommendation, advice or forecast. Please remember that we’re unable to give financial advice. If you’re unsure about the suitability of an investment please speak to a financial adviser. If you don’t already have one you can find one on our Get financial advice page.