Insights
By: Peter McLean
US election poses uncertainty for investors as Trump’s dominance grows
Domestic polarisation and geopolitical instability combine to unsettle the outlook
Elections often spell uncertainty for markets, but the combination of global instability and domestic polarisation, deepening political and social divisions, makes this year’s US Presidential election particularly uncertain for investors.
Much will depend on the state of the US economy in the second half of the year. If a recession is avoided and consumers feel the benefit of rising real incomes, the re-election of President Biden will become more likely as voters are reassured that things appear to be ‘going well’.
US resilience in 2023 can be largely attributed to robust consumer spending which steered the economy through challenges such as a regional banking crisis and the sharpest rise in interest rates since the 1970s. Savings accumulated during the pandemic and a strong labour market further contributed to this resilience.
Having rejected the consensus expectation for recession in 2023, we expect the US economy to moderate in 2024, with growth slowing from the current six month run-rate of 3.5% per annum (Source: Bloomberg, September 2023).
However, a more meaningful economic deterioration by November cannot be ruled out. Such a scenario would dent confidence in the current president and embolden the Republican nominee, who currently looks likely to be former President Trump, see chart.
Whatever the outcome, the implications of this contest are substantial. Geopolitical tensions will remain high given questions over US foreign policymaking for 2025-2029, with NATO membership at stake.
Furthermore, with an incentive to undermine the likelihood of President Biden’s re-election, Russia may attempt to apply pressure through the energy market or by escalating the Russian offensive in Ukraine. Elsewhere, the risk of miscalculation in the Middle East and with China is also high, with the opportunity to exploit domestic polarisation in the US.
With a backdrop of uncomfortably high risk around geopolitical escalation, an investment strategy which embeds multiple diversifying assets and adopts a flexible approach is more vital than ever.
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