SSGA: Impact on sectors and asset classes of four US election outcome scenarios

2 oktober 2024

Vooruitzichten Verenigde Staten Politiek

Amerikaanse verkiezingen VS (TheDigitalArtist, Pixabay).jpg

Given the developments on the Democratic side of the ticket, Elliot Hentov, Head of Macro Policy Research at State Street Global Advisors, provides an update on how the various election outcome scenarios could impact sectors and asset classes.

Hentov summarizes the four core election outcome scenarios and their impact on policy and regulation in the aftermath of the election:

A Republican sweep with full Republican control of all branches of the federal government
A Trump victory with a split Congress where the Democrats control the House and the Republicans have a majority in the Senate
A Harris victory with a split Congress as in scenario 2
A Democrat sweep

'In terms of probabilities, we believe that the presidential race remains a coin toss, but that a split Congress is likely (i.e., well above a 50% chance). Between the two tail outcomes, a Republican sweep is much more conceivable than a Democratic one, which we view to be a remote outcome,' Hentov says.

Bonds Versus Equities

In Figure 1, Hentov highlights the potential impact to Treasuries, US equities, and the US dollar across the various core scenarios. The fiscal-monetary policy mix will largely determine the slope of the yield curve. With the caveat that we anticipate a soft landing and no near-term recession, Hentov foresees the yield curve being driven by macro fundamentals in most election scenarios except for the case of a Republican sweep.

Sector Specific Rationales

In 2024, Hentov expects dispersion to be much more contained than in the previous two cycles. Nonetheless, there are notable performance differences that are dependent on the policy backdrop.

A wave of deregulation could be beneficial to Financials, particularly banks, but it would likely be smaller than in the previous Trump administration. Higher rates and a steeper yield curve should be helpful to bank margins, although this could be offset by slower loan growth and higher delinquencies for banks. In his article, Hentov zooms in to every sector shown in Figure 2.