Biden is out, but what will be the difference?

US Election 2024

Biden is out, but what will be the difference?

Althea Spinozzi
Head of Fixed Income Strategy

As Biden exits the U.S. presidential race, markets are buzzing with speculation about the future. The potential shift in power has investors reassessing the much-debated Trump Trade and pondering the implications of a Democratic versus Republican victory.

What is the Trump Trade and why is it being questioned?

The Trump Trade suggests that certain sectors of the U.S. economy, such as banking, industrials, and energy, would benefit from deregulation and tax cuts. Bitcoin is favoured, while fixed income, especially U.S. Treasuries, appears less attractive due to expected fiscal spending and the resulting upward pressure on bond yields.

With Biden withdrawing, and Democrats possibly having a higher probability of winning, the market is evaluating a scenario without the Trump Trade. Although fiscal spending is expected to remain high, benefiting lower and middle classes, the impact on U.S. Treasuries could still be bearish due to increased yields.

How is the bond market reacting to the US election?

The potential for significant fiscal spending under either administration is putting pressure on bond yields. This fundamentally means that regardless of which political party wins, there will likely be a lot of government spending.

A Republican victory, continuing the Trump Trade, implies increased fiscal stimulus, pushing bond yields higher and reducing fixed income attractiveness. Conversely, a Democratic win might also maintain high spending levels but could focus on different fiscal priorities, still pressuring bond yields upward. When yields increase, new bonds offer better returns than existing ones, making the older bonds less valuable. As a result, investors might be concerned about holding bonds, anticipating lower prices and potential losses on their current bond investments.

Which stock market sectors will be impacted by either a Democrat or Republican president?

As discussed in previous notes, Democrats in the White House could bolster sectors such as healthcare, technology, and renewable energy, maintaining their recent gains. Republicans would favour banking, industrials, and energy sectors, driven by deregulation and fiscal policies conducive to these industries.

What to expect from financial markets till Election Day?

As the election approaches, market volatility is expected, influenced by news regarding the presidential campaigns. However, hard data will ultimately drive asset performance. The U.S. economy's deceleration, rising unemployment, and stable inflation nearing 2% suggest the Federal Reserve might cut interest rates, potentially boosting bonds and overall stock markets.

The upcoming U.S. presidential election introduces significant uncertainty into the markets. While a Trump Trade scenario favours certain sectors and assets, a Democratic win could continue the momentum in others. Investors should brace for volatility and focus on economic indicators to navigate this period.

Quarterly Outlook

Quarterly Outlook
Macro Outlook: The US rate cut cycle has begun
Peter Garnry
Chief Investment Strategist
The Fed started the US rate cut cycle in Q3 and in this macro outlook we will explore how the rate c...
Read full article
Quarterly Outlook
Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges
Althea Spinozzi
Head of Fixed Income Strategy
Read full article
Quarterly Outlook
Equity Outlook: Will lower rates lift all boats in equities?
Peter Garnry
Chief Investment Strategist
After a period of historically high equity index concentration driven by the 'Magnificent Seven' sto...
Read full article
Quarterly Outlook
FX Outlook: USD in limbo amid political and policy jitters
Charu Chanana
Chief Investment Strategist
As we enter the final quarter of 2024, currency markets are set for heightened turbulence due to US ...
Read full article
Quarterly Outlook
Commodity Outlook: Gold and silver continue to shine bright
Ole Hansen
Head of Commodity Strategy
Read full article
Quarterly Outlook
FX: Risk-on currencies to surge against havens
Charu Chanana
Chief Investment Strategist
Explore the outlook for USD, AUD, NZD, and EM carry trades as risk-on currencies are set to outperfo...
Read full article
Quarterly Outlook
Equities: Are we blowing bubbles again
Peter Garnry
Chief Investment Strategist
Explore key trends and opportunities in European equities and electrification theme as market dynami...
Read full article
Quarterly Outlook
Macro: Sandcastle economics
Peter Garnry
Chief Investment Strategist
Explore the "two-lane economy," European equities, energy commodities, and the impact of US fiscal p...
Read full article
Quarterly Outlook
Bonds: What to do until inflation stabilises
Althea Spinozzi
Head of Fixed Income Strategy
Discover strategies for managing bonds as US and European yields remain rangebound due to uncertain ...
Read full article
Quarterly Outlook
Commodities: Energy and grains in focus as metals pause
Ole Hansen
Head of Commodity Strategy
Energy and grains to shine as metals pause. Discover key trends and market drivers for commodities i...
Read full article

Access both platforms from your single Saxo account.

Preview platform Open Account

Disclaimer

The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website. This content is not intended to and does not change or expand on the execution-only service. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
- Full disclaimer (https://www.home.saxo/en-gb/legal/disclaimer/saxo-disclaimer)