How US Election Issues May Impact Market Trends

Table of Contents

Joe Biden and Donald Trump are set for a historical presidential rematch in November 2024, marking U.S. history’s first rematch since 1956. 

American citizens are expected to participate in the electoral process to select the 47th President of the United States. And whoever wins the seat holds the power to reshape the country—drive legislative agendas, start or end a war, nominate Cabinet members and enforce the country’s laws.

From the immigrant population to the higher inflation and the U.S. aid to Ukraine and Israel, several issues loom large on the national stage. These issues could shape not only the future of American politics but also market trends and investment decisions. So much is on the line.

But how can these issues exactly impact capital markets? What does it mean for you as an investor? Below we’ll discuss the top presidential election issues, how these issues may affect market trends and how to invest during a U.S. election year.

List of 2024 US Presidential Election Issues

According to a Statista survey conducted in February 2024, 20% of Americans identified inflation and prices as their primary concern. Criminal justice reform has the lowest priority, with only 1% of respondents citing it as their main political issue. 

Figure 1.

Source: Statista

Another survey from the Pew Research Center also revealed that inflation is a major issue for both Republicans and Democrats. According to the findings, 77% of Republicans and 52% of Democrats consider inflation to be a problem. This bipartisan recognition highlights the broad impact of inflation across the U.S. political spectrum. 

Figure 2.

Source: Pew Research Center

Following closely behind is the affordability of healthcare, with 73% of Republicans and 54% of Democrats stating it as a significant issue. This is no surprise since roughly half of adults in the U.S. find it challenging to cover healthcare expenses, and four in ten adults report they have incurred debt related to medical or dental bills.

These US Presidential Election issues can significantly impact stock market trends and investment decisions. The policies from the winning presidential candidate to address these issues can lead to significant shifts in the market, investor sentiment and consumer behaviour, among many other factors. 

How?

Let’s take a look at a real-life example. When Donald Trump was elected president in 2016, he announced that the administration would immediately stop making vital payments to insurers offering Obamacare health plans. The announcement was made on a Thursday.

The next day, shares of hospital operators and health insurers experienced a sharp decline in Friday’s trading session. Among hospital stocks, Tenet Healthcare (NYSE:THC) saw a substantial drop of nearly five per cent, while Molina Healthcare (NYSE:MOH), an insurance provider, fell by over four per cent.

Similar events might take place in the 2024 U.S. Presidential Elections. Investors will likely closely monitor the candidates’ policy proposals and their potential impact on the market, particularly within the key issues mentioned above.

How The Issues Affect Market Trends

As the U.S. elections draw nearer, more attention is being directed to the candidates and the critical issues they support. The effects of the impending national election stretch beyond politics, affecting financial markets and economic environments alike.

And while presidential policies matter, they won’t affect all sectors, industries and markets in the same way. Some will do better, others might do poorly.

Let’s examine how a few policies proposed by Biden and Trump, addressing issues like healthcare, inflation and immigration, are likely to affect markets.

Inflation Policies May Affect The Energy Industry

One of Trump’s proposed policies to address inflation would involve increasing gas production. During his campaign rally in Las Vegas last January 9, 2024, he said: 

‘Remember this: Gasoline, fuel, oil, natural gas went up to a level that it was impossible. … That’s what caused inflation, and we’re going to bring it down because we’re going to go drill, baby, drill.’

Moreover, the oil and gas industry strongly favours Donald Trump for president. Industry donors have contributed a whopping US$7.37 million to Trump’s reelection campaign, while Joe Biden only received US$635,000.

If Trump’s proposed policy to address inflation by increasing gas production were to be implemented, it’s plausible to expect investors to become more interested in gas production companies. It would potentially drive up their stock prices.

In fact, oil prices immediately spiked after Trump tweeted in 2020 that he talked to the leader of Saudi Arabia, the Crown Prince, and he expects that Saudi Arabia and Russia will reduce the amount of oil they produce to increase demand.

Source: OilPrice.com

WTI Crude jumped 25.90 per cent at US$25.51, while Brent Crude surged 20.57 per cent at US$29.83.

On the other hand, Biden’s Inflation Reduction Act could have the opposite effect. It aims to combat the climate crisis, cut Americans’ energy costs and ‘reduce carbon pollution in U.S. history.’ It helps the U.S. fulfil its obligations under the Paris Agreement on climate change.

A ScienceDirect study titled Trump vs. Paris: The impact of climate policy on U.S. listed oil and gas firm returns and volatility revealed that some industries experienced a decrease in returns with the signing of the Paris Agreement. It harmed the Oil and Gas sector (CAAR −8.4%), particularly affecting Exploration and Production (CAAR -12.2%) and Drilling (CAAR -10.5%).

Moreover, Biden’s policy during his election campaign in 2020 was to ‘transition away from the oil industry’. According to boutique research and advisory group Strategas, it would harm the oil and gas industry. Meanwhile, companies in the solar and wind energy sector, such as First Solar and Renewable Energy Group, would thrive as a result.

Figure 3.

Source: Financial Times

Immigration Policies May Affect The U.S. Labour Market

Donald Trump is known for his extreme immigration policies. In his reelection campaign, he plans to build ‘the largest domestic deportation operation in American history’, bring back raids on undocumented immigrants and build detention camps where they will be detained.

These policies often sparked controversy and debate, with critics arguing that they were inhumane, discriminatory and economically harmful. 

His immigration policies’ harmful consequences on the labour market were evident in June 2020. When Trump issued an executive order suspending new work visas for highly skilled immigrants, it blocked nearly 20,000 foreign workers on H-1B and L-1 visas.

Three to five days later, it cost Fortune 500 companies more than US$100 billion, a decline of approximately 0.45% in their stock market valuation.

According to Wharton management professor Britta Glennon, investors and markets quickly reacted because they knew how much these workers help companies do better. She also claimed that skilled immigrants are usually the best talent U.S. firms can hire.

If Trump wins and these policies are reinforced, companies might start moving their operations to other countries instead of hiring more American workers. In the short term, these policies may cause even bigger losses in the stock market. But in the long term, they could make things even worse by making companies move jobs and investments away from the U.S.

Healthcare Policies May Affect Pharmaceutical Companies and Insurers

Biden’s healthcare policies prioritise regulating drug prices and making a public health insurance option to compete alongside private insurers. In his speeches, he proposes to cap insulin costs at US$35, limit how much seniors have to pay for medical care, offer free vaccines and lower the prices of expensive medications.

According to Duncan Financial Group, these policies can negatively affect pharmaceutical companies and health insurers.

Changes in laws or rules can significantly affect how much profit health insurance companies, hospitals and drug and medical device companies make. For example, when then-presidential candidate Hillary Clinton vowed to solve outrageous drug prices in 2015, it triggered a major decrease in the value of biotech stocks.

Within a week, the Nasdaq Biotechnology Index dropped by 13%, and over six months, it fell by 30%.

Figure 4.

Source: Wall Street Journal

Deciding On Investment Instruments

Investing during an election year can seem challenging because things are so uncertain. As candidates talk about policy shifts, it can affect the markets in different ways, leaving investors uncertain about the right course of action.

To make informed decisions about your investments during the election season, you need a strategic approach that considers both potential risks and opportunities.

Stay Informed, Adapt Accordingly

Keep yourself updated with the latest policy developments that could influence the market. Monitor the candidates’ announcements on their official websites, follow industry experts and subscribe to reliable financial news sources.

Make sure that you don’t solely depend on headlines. Conduct in-depth research on the investment instruments you’re considering. Understand the underlying factors affecting their performance and how they might react to policy changes.

Diversify Your Portfolio

As the saying goes, do not put all your eggs in one basket. Diversify your portfolio across different asset classes, such as stocks, bonds, real estate and commodities. Ensure they are aligned with your objectives, time frame and risk tolerance.

However, remember that diversification and asset allocation are tools to manage risk, not shield against investment losses.

Final Thoughts

Considering all these U.S. Presidential Election issues and their potential effect on the market, a sensible strategy for many investors is to remain steady and disciplined. Despite the uncertainty that elections may bring, it’s wiser to focus on the long run.

Maintain a diversified portfolio, and keep yourself from trying too much to predict market movements based on short-term events.

Most importantly, you should stay updated and research key election topics. Knowing how politics might affect the market helps investors make better decisions, preparing them for both opportunities and risks.

We’re here to help. UOB Kay Hian can help readers stay informed about the latest political developments and their impacts on market trends. Stay ahead of the curve and leverage our expertise to make smarter investment choices.

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