Forecasting the 2024 US Elections: How will the US elections affect the stock markets?

15 Minutes
Updated Jun 6, 2024 09:07
Dr. Nguyen Hoang Phu
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Source: DepositPhotos

Major political events in large countries, especially the US, always have a certain impact on the economic market. The US presidential election is a prime example of this, as it will have significant implications for the country's policies and international diplomatic relations.


The US presidential election is held every four years, with the next one scheduled for 2024. The outcome of this election can greatly influence a variety of economic and financial factors, including the stock market and other investment markets.


This article will examine the relevant details about what impacts the 2024 US presidential election may have on the markets. Understanding these dynamics is crucial for investors who want to make informed decisions and navigate the potential market volatility surrounding the 2024 US presidential election.


1. Important Components of the US Election

The US presidential election is held every 4 years, typically in November of an even-numbered year (2012, 2016, 2020, etc.), and the next one is coming up in 2024.


This also means that a president will serve a 4-year term. The US vice president is also selected as part of this election. Rather than a direct popular vote by US citizens, the US presidential election is conducted through members of the Electoral College.


The key components of the US election include:


  • The presidential election is held every 4 years

  • The president and vice president are elected together

  • The election is decided by the Electoral College, not just the popular vote


No.

Ingredient

Describe

1

President

+ Conditions:

- Be an American citizen born in the United States.

- From 35 years old or older.

- Permanent residence in the US for at least 14 years.

+ Term: 04 years

+ Responsibility & power: Domestic, foreign, legislative & executive affairs.

 

2

Vice president

+ Conditions:

- Be an American citizen born in the United States.

- From 35 years old or older.

- Permanent residence in the US for at least 14 years.

+ Term: 04 years

+ Responsibilities & powers: President of the US Senate & assumes the position of temporary President in case the US president is unable to perform the position.

 

3

Electoral College

+ Number: 538 belonging to the 50 US states and the District of Columbia (the number of electors depends on the number of people divided in the US Congress in that state).

+ Time: only created during the election period (every 4 years)

+ Function: vote for US president & vice president.

4

The Senate

+ The Senate consists of about 100 senators in 50 states.

+ Term: 6 years

+ Mission in the election: When no candidate gets more than ½ of the votes to become vice president, the Senate will make the choice.

5

House of Commons

+ The House of Representatives includes about 435 members of the House of Representatives with voting rights.

+ Term: 2 years

+ Mission in the election: When no candidate gets more than ½ of the votes to become president, the House of Representatives will make the choice.

6

Citizens have the right to vote

+ Conditions:

- Over 18 years old before election day

- Be a citizen of the US.

- Meet state residency requirements.

+ Responsibilities and functions: citizens have the right to vote universally to elect electors in their state. And usually the electors will also vote for the candidate who wins the majority of the popular vote in their state.


2. The U.S. Election Process

The election process:

Illustration of the U.S. presidential election process

Illustration of the U.S. presidential election process (Source: kids.usa.gov)


Stage 1: Presidential Candidacy (about a year before election day)

Eligible candidates who want to become president (usually from the two major parties - the Republican Party and the Democratic Party) will set up a Committee.

This Committee will travel across the United States to gather support and raise funds for their campaign.


Stage 2: Campaign Efforts

Candidates from both parties will participate in televised debates. Each candidate will answer policy questions and defend their policy positions against the other candidates.


Stage 3: Primary Elections and Caucuses

Starting around February of the election year, primary election events - party members will elect the representative candidate for the general election, and caucuses (discussions and voting to select delegates) will be held.


Stage 4: National Conventions

Each party will hold a national convention to select the final presidential candidate.


Stage 5: General Election

Citizens in each state will vote for a president and vice president. Essentially, they are choosing a group of electors to directly vote in the election.


Stage 6: Electoral College

The Electoral College will vote and decide who becomes president. Currently there are 538 electors, and the candidate who receives over half the votes or at least 270 votes will win.


In addition to the presidential election held every 4 years, the U.S. also holds midterm elections 2 years after each presidential election.


This is also an important event with significant political and economic impacts in the U.S. The next part of the article will explore this event in more detail.


3. Understanding the U.S. Midterm Elections

The U.S. midterm elections are general elections held midway through the president's 4-year term.


In the midterm elections, 453 seats in the House of Representatives and 35/100 seats in the Senate will be selected. Additionally, the governors of 39 states and territories, as well as other state and local races, will also take place at the same time. The results will determine the makeup of the 118th U.S. Congress.


The Functions of the U.S. Congress:


The two chambers of the U.S. Congress, the Senate and the House of Representatives, have equal legislative and judicial powers; declaring war; regulating commerce; monetary policy (taxes, printing money, borrowing money, etc.).


However, there are some differences:


House of Commons

The Senate



435 members: 220 Democrats + 212 Republicans + 3 vacant seats.

100 members: 48 Democrats + 2 independent politicians + 50 Republicans.

In the House of Representatives, the majority party will hold the main power in the house to draft laws, plan for discussion and vote. 

In most cases, House rules will limit debate so that important legislation/laws can be passed on legislative day.

In the Senate, the majority holds planning power when bills come to Congress for a vote, but a Senator can delay the time it takes a piece of legislation to Congress for a vote. 

Because debate in the Senate cannot end until 60 Senators vote to pass it.


Midterm election process:


Phase 1: Election Campaign

In this phase, the Parties can carry out campaigns to support their own candidates in order to gain an advantage in the official election or for other political purposes.


Phase 2: Federal Election

The election of members of the Senate and House of Representatives is held. Additionally, there are special elections, including 2 special Senate elections and 8 special House elections to elect replacements for those who were recalled or lost their seats during the 117th Congress.


Furthermore, the states and localities also organize their own elections to select candidates for their own governments, such as the gubernatorial, secretary of state, and attorney general elections at the state level, or mayoral elections at the local level.


The results will be determined at the 118th United States Congress, expected on 1/3/2023. The election results will determine the dominance of the Democratic Party or the Republican Party in enacting and implementing policies going forward. The impact and forecasts of the 2022 midterm elections will be discussed in the next part of the article.


4. Forecasting the 2024 US Elections

Current Situation


The 2024 US midterm elections are eagerly awaited with many forecasts and much interest. This election will determine the seats in the House and Senate, directly impacting US policy and development. Currently, the major US political parties are preparing for this election, with the Republicans and Democrats having different strategies and candidates.


To win the presidency, a candidate must secure 270 of the 538 available electoral votes, distributed among the 50 states and the District of Columbia based on population. Nebraska and Maine have unique systems: they award two electoral votes to the statewide popular vote winner, and distribute the remaining electoral votes by congressional district winner. This map classifies the states by the likelihood of each candidate winning.


 a candidate must secure 270 of the 538 available electoral votes

According to the Electoral College Forecast, they predict that Donald Trump has a 56% chance of winning the presidency. This combines the latest polling and fundraising data with "fundamentals" like incumbency and party of each district. This chart tracks each candidate's probability of winning the presidential election over time.


The Electoral College Forecast predicts that Donald Trump has a 56% chance of winning the presidency.


The Electoral College Forecast predicts that Donald Trump has a 56% chance of winning the presidency.


Biden and Trump both easily secured party support in March, but their preliminary performances in some states have been hampered by anti-voting efforts on both sides. Disappointed Democratic voters over Biden's handling of the Israel-Hamas conflict have chosen "uncommitted" options, while anti-Trump Republicans have voted for Nikki Haley, who is no longer in the race.


According to the DDHQ/The Hill tracker, "uncommitted" votes have so far won 30 delegates against Biden, while Haley has won tens of thousands of GOP votes. While these numbers do not threaten Trump or Biden's status as nominees, the protests have highlighted factions within both major parties in what could be a fiercely contested race.


Biden VS Trump polls


Biden and Trump are both likely to continue seeing protest votes in some of these final states. According to the New Jersey Monitor, in some areas of New Jersey, Democrats will have the option to vote for convention delegates with the slogan "Justice for Palestine, Ceasefire Now!"


The primary round is also the first to take place since Haley announced last week that she would vote for Trump instead of Biden in the fall.


4. How will the 2024 US elections affect the stock markets? How to avoid the potential risks

The US presidential election has various impacts on the stock market. The quadrennial presidential election will have a significant impact on US policies, laws, and foreign relations. Analysts at US banks have analyzed market data since 1930 and found a relatively regular cyclical pattern of the presidential election's impact on the stock market.


  • Historical data on the S&P 500 index shows that on average, the performance of the stock and bond markets is weaker in the year before a presidential election compared to other times. During the election period, the stock market's performance is also slightly worse. After the election, there are different variables that impact the stock market, and stock market returns often decline slightly in the following year, while bond performance is slightly better than during the election.


  • The stock market's volatility is not significantly impacted by the elected president. Analysts found that when a new party takes office, the stock market rises an average of 5%. When the same president is re-elected, stock returns rise slightly, reaching 6.5%. Political issues are usually not the key factors considered by the market. Regardless of which party's candidate is elected, there is usually not a significant overall impact on the stock and bond markets, because "the market does not like uncertainty".


  • However, key policy adjustments with significant impact can influence the market's direction. Policies in the four key areas of fiscal, monetary, market, and trade can have a greater impact on the real economy and the stock market. These policies may lead to changes in market valuations.


As for how to reasonably avoid the risks that the US presidential election may bring to the stock market, it is wise to closely monitor which industries are most likely to be affected by the presidential election. But there is no need to panic about market volatility during the election season or its aftermath. Even without the impact of the election, increased volatility may not necessarily mean bad news, especially when the economic situation is good.


For investors, the focus should be on relevant policies with significant impact, rather than the competition between candidates and parties. Investors should pay more attention to their own investment portfolios and ensure rebalancing when necessary. For the presidential election, it is suggested that investors ensure they have a diversified investment portfolio and develop a medium to long-term investment plan to cope with the variable factors that may impact the capital market during the election.


Regardless of the election result, for investors, it is still important to understand the situation and changes in macro policies. While understanding the volatility and performance patterns in election years may generate some investment opportunities, the key is to have a long-term investment strategy and risk control measures to cope with the uncertainties in the market.


5. Important events that will affect the US elections that need to be considered

Analyzing the important events that affect the US elections will allow us to make more accurate predictions about the final results.


Midterm election results: If the incumbent president's party controls both houses of Congress, it will somewhat reflect the American people's positive evaluation of the president and the president's plans will also be more favorable in the second half of the term, setting the stage for the next term's re-election bid or the nomination of a candidate from the president's party.


The Russia-Ukraine war: The incumbent president's reactions and countermeasures to global political issues will impact the president's reputation and the public's trust in the president.

Economic growth: One of the most important issues for the American people's livelihood is the economy.


Urgent policies to improve the current state of inflation, GDP decline, or economic recovery after the pandemic and energy crises are becoming critical. This event will also impact the public's psychology going into the next election.


Media: Election campaigns or major media impacts always play an important role in election outcomes.


In addition to the current pressing issues that the incumbent US president needs to address, the policies, election campaigns for the next term, or the achievements of the candidates will determine the votes of the American people as well as the electoral college.


6. Conclusion

Political events are an inseparable factor in analyzing market trends, especially in powerful economies like the US.


The impacts can vary by time and scale of the event, but traders should not overlook them. Through this article, we hope readers have gained a basic understanding of elections in the US and their effects on the market.


FAQ
Does the midterm election result affect the financial market?
Yes, it can. Although market fluctuations depend more on factors like Federal Reserve policies, inflation, and economic growth than the political landscape, the differing economic regulation and market policies between the two parties will have a certain impact on the financial market.
Should you change your investment strategy after the midterm election results are announced?
Traders should adjust their investment strategies based on market developments and their own investment positions, rather than relying too heavily on changes in the political landscape.
Will Donald Trump run for president in 2024?
Mr. Trump has expressed a desire to run in the next term, but this has not been definitively confirmed yet.
Will the economy be a factor in the 2024 US presidential election?
The economy is always one of the top concerns for American voters in election campaigns and the policy platforms of presidential candidates.


Before making any trading decisions, it is important to equip yourself with sufficient fundamental knowledge, have a comprehensive understanding of market trends, be aware of risks and hidden costs, carefully consider investment targets, level of experience, risk appetite, and seek professional advice if necessary.


Furthermore, the content of this article is solely the author's personal opinion and does not necessarily constitute investment advice. The content of this article is for reference purposes only, and readers should not use this article as a basis for any investment decisions.


Investors should not rely on this information as a substitute for independent judgment or make decisions solely based on this information. It does not constitute any trading activity and does not guarantee any profits in trading.


If you have any inquiries regarding the data, information, or content related to Mitrade in this article, please contact us via email: insights@mitrade.com. The Mitrade team will carefully review the content to continue improving the quality of the article.



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