US vote crucial for the global economy, what the markets expect

Agile US elections they will definitely be one of the events of greater impact for global markets and economies this year and next too. A few days before the American vote, investors are watching with bated breath at the possible result that will come from the polls, the outcome of which does not appear to be at all obvious. The fact is that the two candidates – Kamala Harris e Donald Trump — have radically different visions of America’s economic future, with important implications for the rest of the world.

The uncertainty of the pre-vote it was reflected in stock markets around the world which have been under pressure in recent days, despite the comforting quarterly results of the major listed companies. According to some analysts, what investors fear most is a stalemate, which could drag global stocks lower. In the background, intensifying the uncertainty, are the increasingly strong tensions with China and in the Middle East: for this reason, the price of gold – considered a safe haven – has reached record levels in recent weeks.

The hotly contested race between Trump and Harris is not the only element of uncertainty: two days after the vote, there will be a meeting of Fed Steering Committee. The American economy is in excellent health – confirmation will be sought in the data on the labor market – and therefore bets on a ‘jumbo’ cut, i.e. 0.50%, similar to what was decided in September, are fading. It seems more obvious that the central bank will decide on a soft path, reducing the cost of money by 0.25%.

Historically, markets have reacted differently depending on the election outcome. Democrats are often seen as the party of proactive government spending, favoring policies to redistribute wealth through taxation. Republicans, on the other hand, have a reputation for being the business-friendly, small-government party, favoring more passive policies with lower tax rates.

In this election cycle, according to the main political evaluation institutes, Donald Trump is more likely to win the elections than Kamala Harris, around 65%. According to observers, in the event of the victory of Trump could raise tariffs and tax cuts and other policies could be implemented that would fuel inflation, putting upward pressure on bond yields. But the surprise effect that would come from a hypothetical victory for the Democratic candidate cannot be ruled out either.

In the next few days, as the results of the polls come out, the markets will also be carefully watching the control of the House and Senate to determine how likely it is that the program of one of the two parties will be implemented. Historically the US market tends to rise during presidential terms, regardless of who the president is. More generally, the US stock market has historically registered better performance under Democratic presidentsby a wide margin of more than 10% per year.

However, as highlighted in a paper published in 2017 by Rob Arnott, Bradford Cornell and Vitali Kalesnik, this may be due to the fact that two major economic collapses (1929 and 2008) occurred under Republican administrations, while recoveries from those collapses have occurred under Democratic presidencies. Other analysts argue that the markets may prefer a political stalemate, which would be the most likely scenario as, based on current polls, the Republican Party seems destined to win the Senate and the Democrats to win the House.

If these predictions hold true, the most likely outcome is that whoever is president will have to work with a House or Senate controlled by a different party and this will likely mean that policy programs will be more difficult to implement. And according to some observers, such as Darrow Wealth Management, the political stalemate, in which different parties control the presidency, the Senate and the House, could be the best outcome for the markets.

But on one point, the analysts’ assessment is unanimous: whatever the outcome, as UBS states, the American elections will not be a “quiet event” for the markets. In fact, we must not underestimate the emotional effect of the electoral event which could raise the share price in the days preceding the vote.