Article – 2024 U.S. Election: How a Biden or Trump Victory Could Shape the Markets

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Inês Esteves

Financial Markets

Lourenço Pé D’Arca

Financial Markets

Joseph Robinette Biden Jr., better known as Joe Biden, was born on November 20, 1942, in Scranton, Pennsylvania. He is an American politician who served as Vice President of the United States from 2009 to 2017, during the presidency of Barack Obama. Prior to that, he represented the state of Delaware in the US Senate for over three decades, from 1973 to 2009.

Biden is a member of the Democratic Party and is recognized for his long political career, as well as his accessible style and ability to connect with voters. During his tenure as vice president, he played a key role in issues such as healthcare reform (Obamacare), economic recovery following the Great Recession, the fight against climate change, and strengthening US international relations. In 2020, Biden ran for the presidency of the United States and defeated then-President Donald Trump. His campaign was centered on promises to unite the country, restore the dignity of the presidency, and address challenges such as the COVID-19 pandemic, economic crisis, and political division. On January 20, 2021, Joe Biden was inaugurated as the 46th President of the United States, becoming the oldest president to assume office in American history.

The Biden Administration has presented a comprehensive proposal for reforming the US immigration system, including the possibility of legalization and citizenship for undocumented immigrants. However, the approval of this legislation faces challenges in Congress, especially due to Republican resistance. Progress on immigration reform to grant citizenship to illegal immigrants is slow due to the need for bipartisan support, hampered by the Republican Party’s loyalty to Trump and polarization over the immigration issue. Additionally, the Biden Administration is being criticized for maintaining deportation measures instituted by Trump and the Title 42 emergency measure, despite promising a humanitarian change in immigration policy. Lack of bipartisan support may hinder the approval of the proposed immigration reform. Furthermore, despite the promise during the presidential campaign not to build more sections of the wall between the US and Mexico, President Joe Biden decided to continue with the construction of a new section in southern Texas, which has caused surprise and criticism, going against his previous commitments. Biden explained that the decision was motivated by the fact that funds allocated for wall construction had already been allocated and could not be redirected according to existing legislation.

Economically, the US is experiencing robust growth, with a GDP growing by 2,5%, the highest among G7 countries, an inflation rate of 3,4%, and the creation of 353000 new jobs in January. Although President Joe Biden recently stated that the American economy is the strongest in the world, his administration’s economic policies, known as Bidenomics, are beginning to straighten out the economy after the crisis stemming from the pandemic and the war in Ukraine. However, there are reservations. Before the pandemic, under the Trump era, the US economy was in a positive state, with GDP growth, real wages, and the stock market up, as well as low inflation and unemployment. With the arrival of COVID-19, there was a sharp downturn in the economy, but the government’s quick and vigorous response helped sustain Americans’ purchasing power. During Biden’s presidency, the economy has faced challenges, including rising inflation and shortages of consumer goods. Despite this, optimism among Americans has increased with vaccination and the country’s reopening. However, rising prices and the persistence of the pandemic have led to a decline in Biden’s approval ratings. The war in Ukraine has also affected prices, but the Inflation Reduction Act (IRA) has helped control inflation. Despite recent economic advances, many Americans remain skeptical, especially Republicans and independents, while Democrats are beginning to show more confidence in the Biden administration. Economic recovery is being attributed to Biden’s policies and the country’s energy independence. Biden intends to tax corporations at 21%, taxing the wealthy up to $400000 per year. Many other initiatives have been announced, such as an annual tax credit that will give Americans $400 per month for the next two years to be applied to their mortgages when buying a first home or trading up to a slightly larger one. The COVID-19 pandemic has had a devastating impact on Latin America and the Caribbean, with over 2,7 million deaths in the region. This has highlighted the importance of robust and prepared healthcare systems, as well as the need for global cooperation and transparency. President Biden led the leaders of the Americas in adopting a Health and Resilience Action Plan in the Americas, aimed at strengthening healthcare systems and preparing for future emergencies, as well as expanding equitable access to healthcare services. As part of this plan, the Americas Health Corps initiative was announced, which will provide training for healthcare professionals in the region. The US remains committed to strengthening healthcare systems and improving global health security, including efforts to expand the presence of the US Centers for Disease Control and Prevention and strengthen partnerships with regional organizations and individual countries.

Education in the US is extremely expensive, indebting future workers. The IDR program, announced in April 2022, limits payment requirements for low-income borrowers and forgives their remaining balance after a certain number of years. In total, the Biden-Harris administration has approved over $120 billion in student loan forgiveness for over 3,5 million borrowers. Additionally, there has been a call for access to preschool for children between 3 and 4 years old.

Regarding the environment and global warming, the US has returned to the Paris Agreement, committing to cut emissions by 50% by 2030.

In international relations, concerning Russia and Ukraine, Joe Biden’s administration has taken a firmer stance towards Russia, expressing support for Ukraine’s sovereignty and territorial integrity and imposing sanctions against Russia for its aggressive actions in the region. In the case of Israel and Hamas, Biden has maintained traditional US support for Israel but has also sought a more balanced approach, supporting a ceasefire between Israel and Hamas. Biden emphasizes a more explicit and liberal internationalist approach to China, focusing on deterrence rather than containment. The Biden administration has sought to strengthen relations with traditional US allies, such as NATO members and partners in the Indo-Pacific region, reinforcing alliances and cooperation.

Regarding social issues, Joe Biden’s administration has adopted a more progressive stance on social issues, including support for gender equality and LGBTQ+ rights.

Historically, stock markets have often shown mixed reactions to political outcomes. While a Democratic victory may initially lead to uncertainty due to potential policy changes, markets can also respond positively to certain Democratic policies, such as increased government spending on infrastructure or renewable energy, which could benefit specific sectors. Sectors like renewable energy, healthcare, and infrastructure may see increased investment optimism under Democratic leadership, as the party tends to support policies favoring these industries. However, certain sectors, such as fossil fuels or private healthcare, might face increased regulatory scrutiny or policy changes that could dampen investor sentiment in those areas. The energy market’s reaction to a Democratic victory can vary depending on proposed policies related to climate change and energy regulation. The renewables and clean energy sectors could experience a boost if the Democratic Party implements policies aimed at reducing carbon emissions and promoting green energy initiatives. Traditional fossil fuel industries might face increased regulation or decreased government support, which could lead to investor concerns and potential market volatility in those sectors. Real estate markets may react differently depending on various factors, including interest rates, housing policies, and broader economic conditions. Democratic policies aimed at affordable housing, infrastructure investment, and economic stimulus could potentially benefit the real estate market, particularly in urban areas. However, changes in tax policies or regulations related to property investment and development could also have an impact, potentially leading to adjustments in pricing and investment strategies. Overall The overall economic outlook under Democratic leadership could be influenced by factors such as fiscal policy, taxation, trade policies, and government spending priorities. Democratic administrations have historically focused on income redistribution, social welfare programs, and healthcare reforms, which could have implications for economic growth, income inequality, and consumer spending patterns. Increased government spending on infrastructure, education, and healthcare could stimulate economic activity and potentially contribute to GDP growth, although concerns about tax increases or regulatory changes could also affect business confidence and investment decisions.

Donald John Trump was born in 1946, and before entering politics, he was a real estate developer and a businessman. He was the US president from 2017 to 2021, when he lost his tenure to Joe Biden. Trump is now running again for this position in the November 2024 elections. Despite now being a Republican, Trump has also been a Democratic and an Independent. Therefore, it raises the question: how will Trump’s win change the markets? In order to answer this question, it is important to analyze the candidate’s beliefs and programs, as well as the politics of the country at both the international and national levels.

When it comes to international relations, Trump has already made his stance clear in both economics and social matters. During his time as president, he started trade wars with powerful countries, including China. He said that the only way to protect the American economy from Chinese imports that jeopardize national security would be to impose barriers. China was, in his own words, “the primary cause of the loss of US manufacturing jobs and intellectual property” and therefore accountable for “the greatest theft in the history of the world.” Despite the fact that both countries agreed to the 100-Day Action Plan to solve these issues, the US wasn’t flexible in negotiations, leading to China not fulfilling their requests. Following the deadline for this plan, China was hit with many tariffs on products, such as solar panels and washing machines, sparking a trade war against them. With retaliation from China, both economies suffered. For example, the US went through a major job loss and a GDP decrease of almost 1%. Realizing these consequences, both countries agreed to a deal whereby the US lowered tariffs and China committed to spend an additional 200 billion dollars on American products in comparison to other years. During Biden’s mandate, the Chinese disrespect for this deal led to the continuation of the tariffs, but meetings are planned to end the trade war.

Regarding international social matters, Trump has stated that if he had remained president, the wars between Russia and Ukraine and Israel and Hamas would have never broken out. The former president did, however, add that he would not continue to provide monetary help to Ukraine like his ally Viktor Orban (Hungary’s prime minister) and that Israel now needed to finish what they had begun as the nation is losing worldwide support and needs to urgently promote peace.

Based on available data, the US ranked first in the world for immigration in 2023.However, the issue of illegal immigration remains. Since his start in politics, Donald Trump has put in place rigid immigration policies, but these are becoming even more severe in these elections. According to him, immigrants are “poisoning the blood of our country” and coming to the US from “mental institutions”, which seems to be a general consensus, as more than 60% of the population declared to be dissatisfied with the country’s level of immigration in 2023. In order to control immigration and maintain the wall he started between Mexico and the US, new measures will be taken, such as mass deportations by reducing the legal bureaucracy associated with undocumented people and forcing them to leave the country faster, and also detention camps for them while their situation is evaluated.

On a national level, Trump hasn’t yet specified his new education policy, but based on his campaign, it appears that it will place more emphasis on cultural elements than on offering financial aid to cover tuition, unlike his last term. The major topic is funding: any school that motivates racial discrimination will be subject to an investigation and forfeit any monetary help. For the educational establishments that support his policy of ending teacher tenure, a new requirement appears for the teachers: a certificate that proves their patriotism. The idea of leaving the choice of the principals to the parents has also been brought up.

In addition, one of the major problems in the US is the healthcare system. Unlike other economies, they don’t have a public healthcare system. According to Republican policy, Trump’s goal is to put an end to Obamacare, increasing the risk of people having no health insurance.

Furthermore, one of the biggest current concerns is the environment. However, as the former president put it in his own words, “The concept of global warming was created by and for the Chinese in order to make US manufacturing non-competitive”, which led to the US’s exit from the Paris Agreement during his mandate. Joe Biden later reversed this decision. Therefore, one of the most frequently asked questions regarding Trump’s potential victory is whether or not he will remain in the agreement. The candidate hasn’t made his position public yet, but Mandy Gunasekara, the former chief of staff of the environmental policy of the Donald Trump administration, has stated that this option is not only on the table but may also involve withdrawing from the United Nations Framework Convention on Climate Change. This decision could have serious repercussions due to the countries’ possible retaliation in other matters. In terms of the election, it’s important to state that about 70% of the people voted in favor of keeping the current agreement in 2016.

Social matters also impact the voting decision. One of the most discussed topics is abortion, which Trump supports in the following situations: rape, incest, and matter of life. He also agrees with the death penalty.

Regarding economics, his policies are known for reducing both taxes and interest rates, and he is adept of a more flexible regulation. Therefore, in his last mandate, in 2019, the level of unemployment had its lowest value in 50 years and, for the first time, the number of jobs available surpassed the number of people looking for a job. However, the pandemic changed the economic outlook. In 2020, 20 million jobs disappeared, and the unemployment rate went from 3,5% to 14,7% in just 2 months, due to COVID-19. Despite this, the jobs created per month before the pandemic were already inferior to the number reached under Biden’s presidency. Inflation mainly showed a decreasing trend, while interest rates were increasing until July 2019, after which a significant reduction was felt. The stock market can be analyzed by the Dow Jones Industrial Average, which presented a positive trend until 2020, when the recession caused a decrease in this indicator. The GDP presented a growth of 14% during his presidency, which could have been higher if not for the pandemic. Gas prices presented a decreasing trend even during the pandemic, when the price was lower than before the recession. During his presidency, home prices were stable until 2020, when they started going up, making it hard for first-time buyers but benefiting the ones with properties. The spending power grew for 3 years straight and only presented an unstable variation after 2020. One of the highlights of this former president was an index of consumer sentiment with high values (always above 90) until COVID-19. When it comes to the federal deficit, it has grown over these years not only due to the pandemic, which required high expenses in programs like the Coronavirus Aid, Relief, and Economic Security Act, but also due to Trump’s policy of reducing taxes. This policy also applied to corporations, and this decrease didn’t always have the expected impact: many companies didn’t invest more and opted to, for example, ”buy back stocks or pay dividends”.

Taking into consideration the policies already mentioned and data from Trump’s last term, it is crucial to analyze the impact that him winning will have on the markets. At the moment, this victory is predicted to come alongside an increase of 5% in the dollar’s strength, endangering exports. Initially, Trump had proposed a 10% tariff on Chinese products, which could change the current economic outlook and put different assets in jeopardy, as it is visible from the prediction that the GDP would fall 0,31% with this measure. However, in a recent interview, he stated that these tariffs could go up to 60% or even more, meaning a more significant impact on the GDP. The changes in the market would primarily come from this trade war because it isn’t expected to have the same expansive fiscal policy as in his previous presidency. As a consequence, both inflation and interest rates would increase, meaning, for example, a reduction in companies’ earnings. Also keeping in mind Trump’s measures to reinforce the police strength, the approval of Keystone XL and Dakora Access pipelines that mean an increase in oil and gas production and also more flexible regulation that benefits the financial and banking sectors, certain stocks are expected to grow, such as JP Morgan Chase & Co, Exxon Mobil Corp, Chevron Corp and Axon Enterprise Inc. Overall, the S&P 500 is expected to decline slightly.

All in all, we can compare both candidates in different matters. Regarding social issues, the main differences remain in the support Biden gives to the LGBT community while Trump tends to discriminate (for instance, transgender people aren’t allowed to enter the military) and in abortion, as Biden is pro-choice and Trump is pro-life. When it comes to economics, the pandemic affected Biden’s presidency for a longer time, and the population has less confidence in his economic measures. The impact of their victories is hard to predict, as it depends on the policies they decide to implement and on the macroeconomic conjuncture. Nonetheless, prognostications suggest that the stock market is poised to experience a more pronounced upturn under Trump’s triumph compared to Biden’s. Regarding international relations, both candidates agree with the ceasefire between Israel and Hamas but have different stances with Ukraine (Biden supports and Trump wants to quit funding). The main topic related to the environment is whether or not the US will remain in the Paris Agreement (Biden wants to continue, while Trump wants to exit).

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