Photography by Rabih Shasha

As the US election approaches, it is generating plenty of media headlines. But does who is in the White House matter for financial markets?

Historically, markets have performed well under both Republican and Democrat leadership, as seen during the presidencies of Donald Trump and Joe Biden.

In June, the Democrats replaced Biden with Kamala Harris as their presidential candidate, which helped put their campaign on a firmer footing, following a shaky start. Harris is expected to maintain the current policy trajectory, while markets are more focused on Republican candidate Donald Trump, whose proposals could significantly shift the status quo.

Trump 2.0 – higher inflation, higher tariffs, higher interest rates?

Trump’s agenda includes lowering corporate taxes (making the current 21% rate permanent and possibly lowering it even further) and reducing regulation, moves seen as favourable for US companies. However, Trump’s focus on greater trade protectionism and strict immigration policies could increase inflation and risk lowering US and global growth.

Protectionist measures could hurt international firms, especially those exporting to the US. Trump’s policies are widely viewed as inflationary and, if implemented as proposed, could see interest rates remain higher for longer, which would negatively impact US bond prices.

In the background to all of the policy debates and poll headlines, the issue of the high US fiscal debt remains a pressing concern. US Government debt levels have been in focus recently, due to the rising cost of interest payments on US borrowing - which are now getting close to the US’s bill for defence spending or Medicare costs.

Regardless of who wins the election, fiscal restraint appears unlikely, with debt levels expected to rise under both parties.

Importantly, the election isn’t just about who wins the presidency; control of the house and senate will significantly influence policy implementation. Given how much can still change between what the candidates are promising now and when the ink dries on new laws and executive orders, investors should be wary of betting on the financial market impact of current policy proposals.

Market fundamentals matter most

Historically, financial markets have tended to be more driven by economic fundamentals, rather than who is in power or their specific policies. Industry and company-specific factors also contribute significantly to investment returns such as company competitiveness, investment, innovation, product demand, management and earnings.

As the election date nears, maintaining a diversified and well-managed investment portfolio will be key to weathering short-term political and economic uncertainties, and market volatility. Given the numerous uncertainties present, investors should concentrate on their long-term investment goals and leave political bets where they belong – as more of a side flutter.

Contact your local Forsyth Barr office or adviser to arrange a time to chat: forsythbarr.co.nz/contact

Or, to learn more about how Forsyth Barr can support CA ANZ members, please visit: forsythbarr.co.nz/home/ca-anz