BlackRock warns: Here’s how this intense election year can affect the market

Published 13/06/2024, 12:34
© Reuters.
- - "Over half the world's population goes to the polls in 2024. We watch for investment implications. We think governments and candidates have limited solutions to key financial issues for voters." This is what BlackRock said in its weekly market commentary on how this election year could affect the stock markets.

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"We stay overweight U.S. stocks before the U.S. election yet cautious on long-term U.S. Treasuries. No matter who wins, budget deficits are set to stay large. Elections in India and Mexico sparked market volatility, but we focus on long-term positives. A July UK election supports our UK gilts preference," explains BlackRock.

The danger of U.S. debt

"Global voters are expressing frustration about many issues but notably the rising cost of living. Yet we see many incumbent leaders or challengers constrained in any response, notably due to high public debt somewhat tying their hands," the asset manager explains.

Regarding the November U.S. presidential elections, BlackRock notes that "pandemic borrowing swelled fiscal deficits – the shortfall in government revenue versus spending. No matter who wins, deficits are set to remain historically large. Neither is charting a path to a sustained reduction in deficits. These deficits reinforce persistent inflation and our view that the Federal Reserve will need to keep rates high for longer. We think that, and markets needing to absorb large bond issuance, will spur investors to demand more term premium, or compensation for the risk of holding long-term U.S. bonds."

"We track potential changes on U.S. trade, immigration and energy policy – and see a potential inflation boost no matter who wins. On trade, Trump has suggested a more protectionist stance that would levy a 10% across-the-board tariff and a 60% tariff on Chinese goods. Biden is expected to keep his current protectionist policies, like higher tariffs for some sectors, industrial policies favoring domestic production and the use of export controls," highlights BlackRock.

Other elections

It is a very intense election year, says BlackRock. "The UK votes in early July rather than in late 2024 as originally expected. A decisive victory for one party could create the political breathing space to address the UK’s structural issues, such as weak productivity growth. Beyond potential policy changes, a July election could allow the Bank of England to start cutting rates once it’s over – a reason why we like UK bonds," the asset manager emphasizes.


In summary, for now BlackRock remains overweight in U.S. equities and is watching the key policy areas of the presidential elections. "On a strategic horizon of five years and longer, we like government bonds in the euro area and UK on expectations for lower interest rates," they add.

U.S. stocks hit new highs last week and are up nearly 13% this year. The Bank of Canada and the European Central Bank cut rates for the first time since the start of the pandemic. " Markets are focused on how far central banks can cut rates – and are now split on whether the Fed will cut once or twice this year after the strong U.S. payroll gains last week," points out BlackRock.

"We don’t see these rate cuts as the start of a cycle of multiple cuts given sticky inflation holding above central bank targets," they conclude.

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