2024 in Focus: How the US election could shape markets 

Markets  

The global stock market has begun 2024 on a positive note. The index is up 4% in sterling terms. While led by the leading technology and communication services companies in the United States, often referred to as the "Magnificent 7", gains have also been seen in other sectors and markets (notably Japan). Earnings reports for the fourth quarter have generally been positive. For example, with two-thirds of the US S&P 500 companies reporting, earnings have slightly exceeded expectations.

Contrastingly, the bond market has begun the year giving back some of the positive returns generated in the fourth quarter. The economic resilience in the US that has supported the stock market has pushed out when the market expects central banks to be able to cut interest rates in 2024. At the turn of the year, the US Federal Reserve was expected to cut rates six times in the next year. That is now down to four or five cuts. The Bank of England was expected to cut rates five times which has adjusted down to three times. This has had a negative effect on the bond market, as evidenced by a minus 4% total return for the gilt market.

Politics 

There are a myriad of elections being held around the world this year. Several are potentially on the radar of investors. For example, some were concerned that the Taiwan Presidential election on January 10 could be disruptive to markets if the People's Republic of China reacted to the election of a pro-independence Taiwanese President. But markets have remained calm in the wake of that outcome.  

The US election will be the one that could have an impact on markets. The most likely outcome is a rematch of 2020 with ex-President Trump challenging President Biden. Markets are cynical creatures so they will not be swayed by the ethics of any such outcome. For markets, Trump was helpful thanks to tax cuts and light touch regulation during his first term. Biden has supported the economy via fiscal spending and encouraging private sector investment in certain industries. So the market has been relaxed about a rematch.

It is possible that markets could react though if in fact a rematch starts to become  less likely. Recent developments have cast a spotlight on President Biden's age and there is open debate about whether he can realistically lead the country through a second term at the end of which he will be 86. Concurrently, Trump faces four trials in 2024 including two starting in March. Convictions in those trials could lead to jail time. Whether a convicted Trump would be as popular among the Republican party remains to be seen.

So for now, even the US election is not a significant factor influencing markets. But any serious possibility of a new candidate on either Party’s ticket would introduce a layer of uncertainty that could unsettle markets.

In summary, the financial outlook for 2024 is cautiously optimistic, buoyed by strong corporate earnings and a resilient economy. However, political developments, especially in the US, could introduce volatility.