How the outcome of the second election between Biden and Trump could affect stocks

The anticipated November rematch between President Joe Biden and former President Donald Trump is arguably the most significant event on this year’s geopolitical calendar. However, it seems that markets have not been significantly affected by this.

However, there may be a shift on the horizon, as investors become increasingly uneasy with the various possible outcomes. Polls and betting markets suggest that the race’s outcome is highly uncertain, according to a team of strategists from JPMorgan Chase & Co.

The outcome of the vote could have significant consequences for both American and international interests. Investing in stocks. Currently, investors are uncertain about what lies ahead. Investors have a strong aversion to uncertainty.

According to the JPMorgan team, led by Dubravko Lakos-Bujas, the investment bank’s chief global equity strategist, the inability to determine the outcome of this crucial election is a matter of concern for equity investors who want to navigate key US policy themes.

Given the narrow leads for both candidates and both chambers of Congress, there is still a considerable amount of uncertainty and potential for a surprise in November. Although betting odds and polling offer some insight into the outcome, they do not provide a definitive answer.

Given the significant disparities in policy objectives, it seems that the best-case scenario for markets would be for things to stay as they are. This would entail Biden staying in the White House while Congress remains deadlocked.

However, if either the Republicans or Democrats were to gain control of both the White House and Congress, it could have a detrimental effect on stocks. The team mentioned that if Trump were to win, emerging-market stocks could face a more significant negative impact. This is because of his tendency towards protectionist trade policies, particularly targeting China.

There have been discussions about the possibility of implementing significant tariffs on Chinese goods entering the U.S., as well as a universal tariff on all other U.S. trading partners, and a substantial tariff on Chinese cars manufactured in Mexico.

While it is an unlikely scenario, a potential Democratic sweep in the upcoming election could have an impact on the stock market. If Democrats were to gain control, there is a possibility that they would consider raising taxes on individuals and corporations.

There are several tax policies being discussed by Democrats. These include potential changes such as raising the corporate tax rate, implementing a minimum tax for large corporations, increasing the buyback tax, raising the top marginal tax rate, introducing a wealth tax, and closing the carried-interest loophole. These proposals are part of ongoing discussions and may have an impact on various aspects of the economy.

The 2024 vote also presents unique risks for markets leading up to election day, which have not been seen in previous elections. According to the JPMorgan team, the total age of the two potential candidates is 158, which indicates that there is a significant risk of health concerns disqualifying one or both candidates.

If either candidate were to be compelled to withdraw for such reasons, it would probably result in a brief impact on the stock market. Meanwhile, the ongoing legal issues surrounding Trump pose a significant potential risk.

Options markets are factoring in a higher risk premium for the November vote compared to previous elections in the 21st century. Traders anticipate a move of approximately 2.8 percentage points on the day following the election, which is slightly larger than the average move of 2.1%.

In contrast to the lead-up to the 2020 election, the options market currently does not indicate a significant likelihood of a contested election result, at least for now. However, the JPMorgan team pointed out that traders didn’t begin factoring in these risks until around mid-July.

U.S. stocks have been on a steady rise since the beginning of 2024, with the S&P 500 SPX showing an impressive 8.9% year-to-date increase, reaching 5,192 early Tuesday. The Nasdaq Composite has experienced a significant increase of 9.1% to reach a value of 16,380. Similarly, the Dow Jones Industrial Average has seen a substantial gain of 1,214.50 points, or 3.3%, bringing it to a level of 38,910.

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