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Please read important information at the end of this program.
Recorded on 11/28/2023
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Chris Hyzy
Chief Investment Officer
Merrill and Bank of America Private Bank
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Regardless of parties and issues involved, presidential elections typically generate one thing markets dislike, uncertainty. In the coming year, we'll witness national elections, not just in the United States but in some 40 countries that together represent more than half of the world's GDP. So, against this backdrop, we still have heightened tensions geopolitically and we want to know what's in store for investors for '24 as we approach such a historic year.
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For more, see the report in the Nov. 13 Capital Market Outlook,
"Elections 2024: A pivotal year in the U.S. and around the world."
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Joe Quinlan with me today. Welcome, Joe. Wrote about this recently in the Capital Market Outlook. So, let's dive in. Joe, we're heading into a U.S. presidential cycle right now, this upcoming year. What do markets have to deal with historically?
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Joe Quinlan
Head of CIO Market Strategy
Merrill and Bank of America Private Bank
[Joe Quinlan speaking]
Well, Chris, they've got to deal with the platforms of the parties. So, as we near the election, what are the platforms, what are the policies? The markets, as you know, forward-looking discounting mechanism. So, they're going to start to price that in. But I think the key issue for a U.S. election, a lot of talk will be the budget deficit, how do you fund it? We're going to talk about taxes… That's going to be on the line. Decarboniza-
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Key economic issues in US election: Taxes, budget deficit, decarbonization, interest rates
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Higher supply relative to demand for Treasurys and how do you fund it?
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How do you fund that?
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Could put some pressure on yields on the back end.
[Joe Quinlan speaking]
And related to that, the supply that the — shock that the Fed has said behind us when inflation comes down. So, the Fed's going to be in a very interesting position here as well. There's the expectations they're going to be cutting rates. We'll see. Will that be politicized? That's all on the table. That'll create some uncertainty.
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And when you step back, you mentioned a lot of different elections outside the United States. Some 40-plus countries are going through some kind of an election. When you're looking outside the United States, what's the most critical election out there?
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GLOBAL ELECTIONS 2024:
Taiwan: Jan. 13, Indonesia: Feb. 14, India: April, Mexico: June 2
Sources: SIS Global Election Tracker, American University, as of 11/29/2023
International Institute for Strategic Studies, "India towards the next general election in 2024."
[Joe Quinlan speaking]
You could start with Taiwan because that's in January, and that's going to be interesting between US, China, and Taiwan. Then comes Indonesia. Then we got India. India's making a move.
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Right.
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Pretty good performing emerging market. Will that continue post the election? European parliament turns over. European parliament, not many people know about that. But they're a regulatory body that can break up antitrust here in the United States and approve mergers, very prominent with climate change, Ukraine, so forth — on down the line. And then lastly, here at home, Mexico. Mexico's a huge partner of ours, big trading. Will they continue with the global supply chain? All of those issues on the table.
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You mentioned four emerging markets. There's a lot of strategists out there that are discussing potential upgrade to emerging markets in portfolios for '24. Those are four key elections. Do they have implications also for other asset classes — or sectors, such as energy, in your opinion?
[Joe Quinlan speaking]
Well, let's start with India, Chris, because there's a lot of expectation that India will continue to grow because of that investment potentially they're not leaving China. So, we'll see how that plays out. Mexico, big resource producer as well.
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Reshoring.
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Reshoring is huge. Indonesia, big producer of nickel, rice. So, all of these issues are on the table so it can affect commodity prices. But the overhang is going to be China when it comes to the emerging markets, whether they reflate or not, and then how the policy backdrop in the United States is unfolding.
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You're going to start to see campaign season unfold beginning of next year, heading into the middle of next year. Are there any market implications in general for that first year of the presidential cycle or at least the election cycle itself?
[Joe Quinlan speaking]
I think we could have a good say first half of the year related to potentially a cut in interest rates, continued growth in the economy, better than expected earnings. But I think the election itself, September/October, could become a headwind for the markets until we get to the other side.
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You've mentioned a lot of risks, some headwinds, and there's opportunities. But overall as you step back, looking at the entire world plus our own election in the United States, what does that strike you in terms of just portfolio strategy overall for '24?
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Stay in the market. There's going to be a lot of negativity in and around both parties, how they're going to be talking about each others' platforms.
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S&P 500 annual average returns since 1945: More than 11%
Source: Bloomberg, "An Election Sweep is Good for Stocks No Matter the Winning Party," 6/23/2020
Past performance is no guarantee of future results. It is not possible to invest directly in an index.
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But if you look at historically since 1945, the S&P total annual average returns, 11%-plus. Keep that in mind. Keep historically. There is Washington, the election. Then there's the real economy in the private sector. This is a growth driver emblematic of the S&P 500.
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Joe, that's a great place to end. Thanks so much for joining me today.
[Joe Quinlan speaking]
Thank you.
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The election story is just beginning, all around the world, not just in the United States.
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Watch our webcast, "Looking toward a new era of growth,"
available for on-demand viewing on Dec. 14 at 2 PM EST.
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Please be sure to join our webcast, "Looking toward a new era of growth," available for on-demand viewing on December 14th at 2 P.M. Eastern Time. Hope to see you there. Thank you.
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