4 aspects to keep an eye on ahead of the US elections

AUTHOR: John Emerson, Vice President of Capital Group International

This is the most striking election year in world history. In 2024, about 4.4 billion people in 76 countries will go to the polls.

And then there's the event the whole world is waiting for: on November 5th, the United States will elect a President and Vice President, 34 Senate seats, and all 435 members of the House of Representatives.

Keeping this global scenario in mind, here are four elements that, in our opinion, will influence the outcome of what will probably be one of the most crucial US elections in a generation:

1. 'It's (still) the economy, stupid'

Right or wrong, US presidents win or lose elections based on perceptions of the economy. It happened in 1932 to Herbert Hoover, ousted by the Great Depression, or to Jimmy Carter, who lost the 1980 election due to the economic malaise of the late '70s: often everyday problems determine electoral outcomes. This year will be no different.

2. The result is on the hands of some contested states

In the race to take control of the White House, the Senate, and the House of Representatives, the final results in the swing states are likely to be very close again. The victory margins could be razor-thin.

The first ones to watch in November are Arizona, Georgia, Michigan, Pennsylvania, and Wisconsin. These are traditionally swing states, which could therefore lean one way or the other. In recent years, two other states, North Carolina and Nevada, have been the stage for hard-fought campaigns and therefore often make the 'watch list'.

Once again, the final result will depend on a handful of states and a narrow circle of voters: the vote of less than 100,000 Americans will indeed be decisive in choosing the next President of the United States.

3. Fiscal policy will have the greatest long-term impact

The main tax reliefs enacted under the Trump administration will be renewed in 2025. The extension or expiration will depend a lot on who will control the White House and Congress after the 2024 elections.

A second Trump administration, with the support of a Congress controlled by Republicans, would likely extend the main provisions of the law, while a Biden government would likely seek alternatives, such as increasing taxes on businesses and individuals.

Furthermore, the United States' debt limit will be reconsidered in the spring of 2025, creating new pressure on fiscal and spending initiatives. By the end of 2023, the national debt reached a new high of 34 trillion dollars.

4. Do not allow politics to derail investment plans

In addition to economic issues, many others will be the subject of debate during the election campaign: immigration, abortion, climate change, and global trade will certainly be among these. In the field of international relations, we will hear about the wars in Ukraine and the Middle East and the growing tensions between the United States and China.

All of this could translate into some market volatility, especially as November 5 approaches. Markets hate uncertainty and these elections will produce a lot of it. But there is a fundamental aspect to keep in mind: in the long term, since the 1930s, US stocks have almost always moved upwards towards the end of a president's term compared to their inauguration, regardless of their party affiliation.