The World Is Watching the US Elections

The US presidential election is always a highly anticipated event, not just in America but across the globe. As the world’s largest economy and one of the most influential powers, the outcome of the 2024 US Presidential election could have far-reaching consequences for international stock markets, including India. Whether it’s the policies surrounding trade, tariffs, or economic strategies, the new president’s stance will likely trigger shifts in global financial markets. In this blog, we will explore how the US elections could impact the global stock market, and what investors should keep in mind during this critical time.

Global Investor Sentiment: Playing It Safe Amid Uncertainty

Ahead of the election, global investors are adopting a cautious approach, moving capital into safe-haven assets such as the US dollar and gold. As tensions with China rise and the Middle East crisis continues, many investors are trying to hedge against risks. Historically, the US dollar strengthens during times of political uncertainty, and gold prices have surged to record highs recently.

While stock market fluctuations are inevitable, how global markets react will depend on which candidate wins and what policies they implement. The uncertainty surrounding the election outcome itself is enough to trigger investor caution in the short term.

Historical Context: Which Party Has the Better Track Record for the Market?

Looking back at history, it’s been observed that the stock market tends to fare better under Democratic presidencies. According to a study from the University of Chicago, the US economy’s GDP growth averaged 4.86% during Democratic presidencies compared to just 1.7% under Republicans from 1927 to 2015. Furthermore, the equity risk premium, which measures the return on stocks over bonds, has been notably higher under Democratic leadership.

This historical context can help shape expectations, but it’s important to remember that past performance doesn’t always predict future outcomes. The dynamic nature of global economics means that a range of external factors will also come into play.

What a Kamala Harris Victory Could Mean for the Stock Market

If Kamala Harris wins the election, market surprises and shifts could be expected. Harris is likely to continue many of the current policies but may introduce some new strategies around tariffs, trade, and immigration. Her presidency could result in more stable global relations compared to Trump’s approach, which may be seen as positive for market sentiment.

That said, a Democratic victory doesn’t necessarily guarantee a stock market surge. The economy has been growing robustly since the pandemic, and a Harris administration may prioritize continuity over radical change, which could result in more gradual market movements.

What a Donald Trump Victory Could Mean for the Stock Market

If Donald Trump is re-elected, the stock market may experience heightened volatility, especially in sectors sensitive to his policies. Trump’s pro-business stance could lead to higher stock prices in the short term, but his protectionist policies could stir up global trade tensions.

Concerns about tariffs on China, stricter immigration policies, and the potential for higher interest rates may lead to disruptions, particularly in sectors like IT and pharmaceuticals, which are heavily reliant on US markets. Trump's policies could also push bond yields higher, leading to capital outflows from emerging markets like India, creating additional pressure on global stock markets.

Political Gridlock: What Happens If the US Government is Divided?

Political gridlock — where one party controls the presidency and the other controls Congress — is another likely scenario. With polling trends suggesting that the Republicans may take control of the Senate while the Democrats retain control of the House of Representatives, this divided government could create more challenges for the new president in pushing through major policy changes.

However, this situation may not be entirely negative for markets. In fact, political gridlock often results in fewer drastic policy changes, leading to more stability and predictability for investors.

What to Expect from the Stock Markets: Short-Term Volatility, Long-Term Stability

Leading up to the election, market volatility is likely to rise. Historically, stock markets often experience fluctuations ahead of US elections, with investors reacting to the uncertainty of the outcome. However, once the election results are confirmed and the new government’s policies start to take shape, markets generally stabilize.

Political gridlock, where different parties control different branches of government, tends to result in the most favourable outcomes for the stock market in the longer term. This is because investors generally prefer a stable and predictable policy environment, even if it means slower change.

The Impact on Indian Markets: Navigating Uncertainty

The US elections could have a significant impact on Indian stock markets, particularly in sectors that rely heavily on US markets. Indian industries such as IT, pharmaceuticals, defence, oil and gas, and metals may face challenges depending on the policies of the newly elected US president. For example, a Trump victory could result in a stronger US dollar and increased protectionism, affecting India’s outsourcing and tech sectors.

On the other hand, a Harris win could stabilize US-India trade relations, benefiting sectors that rely on strong economic ties with the US. Indian investors should brace for short-term volatility but focus on long-term strategies that account for potential global shifts.

Conclusion: Brace for Volatility, Plan for the Long-Term

The 2024 US presidential election is expected to bring significant volatility to global stock markets, including India. Whether it’s Kamala Harris or Donald Trump who takes the White House, the election results will have a direct impact on international markets, especially in sectors tied to US policies. In the short term, we can expect uncertainty and fluctuations, but over the long term, the direction of global markets will depend on the policies the new president implements, particularly around trade, tariffs, and international relations.

For Indian investors, staying informed and adopting a cautious approach during this period of heightened volatility is crucial. Focus on diversifying your portfolio and long-term growth strategies to navigate the uncertainty ahead.

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Disclaimer:

The information provided in this blog is for educational and informational purposes only and does not constitute financial advice. RISEVESTORS a does not take responsibility for any investment decisions made based on this content. Always consult a certified financial advisor before making any investment decisions.