United States presidential election
Phil Orlando
U.S. investors vote with their feet. Over the course of the last century, there has been a strong positive correlation between the performance of the equity markets and the economy and the results of presidential elections in the United States.
Looking back over the last 24 four-year presidential election cycles, the performance of the S&P 500 in the three months leading into the early-November election matters significantly for presidential candidates. If the stock market is negative on a price-only basis in those three months, the incumbent has lost his bid for re-election 90% of the time. But if the stock market is positive on a price-only basis in those three months, the incumbent has won the election 86% of the time.
If the U.S. economy is in recession during the two years prior to the election, the incumbent president has lost his bid for re-election every time. But if the economy is growing in the two years before the election, the incumbent has won the election every time.
If the stock market is negative on a price-only basis in those three months, the incumbent has lost his bid for re-election 90% of the time.
President Biden’s current polling numbers are very poor, with expectations for a sharp deceleration in economic growth over the next three quarters. As a result, the stock market could be choppy in the August-September-October period in 2024, which historically has been a precursor to a change in White House leadership.
Against that historical backdrop, we are expecting a constructive year overall for the stock market in 2024. We think the S&P 500 will end 2023 at about 4,600 and are expecting an 8-9% increase to 5,000 by the end of 2024. More specifically, we think the very narrow rally in technology stocks that dominated the first half of 2023 will broaden over the course of 2024, with U.S. large-cap value, small-cap growth and international stocks doing well. We also expect Treasuries to perform well in the fixed-income market and for cash to continue to be a real asset class.
But the new year could also be volatile. The first half could be strong, if the Federal Reserve has paused its interest-rate hiking cycle, as stocks typically rip on Fed pauses. But the late summer and early fall run-up to the November presidential election could be choppy. Post-election, we expect a powerful, end-of-year, sigh-of-relief rally.
The big six: Elections in 2024 will account for a third of the world’s GDP and a quarter of its population
Mark Sherlock, CFA, FCA
As we look into 2024, uncertainties remain, not least fiscal and monetary policies, but also around the upcoming Presidential election. However, we remain constructive on U.S. Equities and in particular U.S. Small and Mid-Cap (SMID) equities.
When approaching our outlook for 2024, keep in mind that U.S. equities have typically gained in the fourth year of presidential terms. Since President Hoover’s last year in office in 1932, the S&P 500 has gained an average of 6.2% in an election year. Whilst the Russell 2500 Index doesn’t have data as far back as the Hoover administration, U.S. SMID has beaten the return of U.S. large caps in every election year. Elections give clarity to investors and the period after an election has historically been positive for U.S. equities. Since the inception of the Russell 2500 Index, it has outperformed the S&P 500 Index in three of the last five first years post-election.
Whilst we don’t claim to have a crystal ball that can predict the outcome of the 2024 election, the strong tailwinds that are supportive of U.S. SMID companies for the next 5-10 years will still be in situ regardless of who is sitting in the White House. The Inflation Reduction Act and infrastructure spending has largely been authorised and will boost new investments. Onshoring, which has seen unprecedented infrastructure spend from the Biden administration, is also on the agenda for the Republican nominees and arguably was kick-started by the Trump administration.
Recession expectations have been pared back in recent months as both the U.S. labour market and broader economy have been resilient to the Federal Reserve’s aggressive tightening policy. The softer inflation data supports the case that interest rates have peaked and provides scope for cuts next year if we see an economic slowdown. A robust domestic economy with structural tailwinds should be supportive for U.S. SMID given that it trades demonstrably cheaper than large cap vs its longer-term average.
Assuming interest rates remain higher-for-longer, selection within U.S. equities will be significant. Companies that have over levered due to the low interest rate environment of the past decade are already starting to feel the pain of a margin squeeze, which will be exacerbated by higher-for-longer rates. The tighter monetary policy will be supportive of “quality” companies; those with strong balance sheets, robust marketing positions and pricing power.
United Kingdom general election
Chris Taylor
The UK real estate market has had to contend with a confluence of multiple challenges that have adversely affected investor sentiment and radically altered occupational demand; heightened geopolitical tensions, Covid, Brexit and a swift normalisation of interest rates. This has not only led to a rapid repricing of real estate markets, but accentuated the existing longer term structural trends affecting occupational demand leading to an increasing awareness of the environmental and societal risks associated with real asset investment.
Political certainty is vital to provide investors with the confidence needed to invest in major new projects, which can deliver both relevant and resilient real estate outcomes. Confidence in planning policies at a national and local level and major infrastructure schemes such as HS2 will be key to how we seek to continue creating value through development projects in placemaking and Build to Rent (BtR) activities. Securing long term patient capital from global investors to fund these new projects is critically dependent upon their confidence in the UK and its political stability; last Autumn’s Budget turmoil caused damage to these investors’ confidence in the UK as an attractive destination for long term investment in real assets.
Whichever government succeeds in winning the forthcoming election will hopefully grasp the importance that the built environment can play as a conduit for not only enhanced productivity, but also delivering tangible societal and environmental benefits to our economy as a whole. Our placemaking schemes in major UK city centres and BtR programme represent outstanding examples of the longer-term value to be released with a compelling partnership between public and private sectors, which thrives upon political certainty and clarity for longer term town planning and infrastructure strategies. The result of the forthcoming election will be key to delivering these outcomes in the built environment and the enhancement of the UK’s productivity and societal and environmental wellbeing.
Political certainty is vital to provide investors with the confidence needed to invest in major new projects...
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