Over half the world's population goes to the polls in 2024. Global voters are expressing frustration about many issues but notably the rising cost of living. Yet we see many incumbent leaders or challengers constrained in any response, notably due to high public debt somewhat tying their hands.
In November, U.S. President Joe Biden will face former President Donald Trump. Under both, pandemic borrowing swelled fiscal deficits – the shortfall in government revenue versus spending. No matter who wins, deficits are set to remain historically large. Neither is charting a path to a sustained reduction in deficits. See the chart below. These deficits reinforce persistent inflation, and our view that the Federal Reserve will need to keep rates high for longer. We think that, and markets needing to absorb large bond issuance, will spur investors to demand more term premium, or compensation for the risk of holding long-term U.S. bonds.
We track potential changes on U.S. trade, immigration and energy policy – and see a potential inflation boost no matter who wins. On trade, Trump has suggested a more protectionist stance that would levy a 10% across-the-board tariff and a 60% tariff on Chinese goods. Biden is expected to keep his current protectionist policies, like higher tariffs for some sectors, industrial policies favoring domestic production, and the use of export controls.
Major changes to legal immigration during a second Trump or Biden administration would have implications for inflation as the U.S. faces a shrinking working-age population. On energy policy, the Inflation Reduction Act (IRA) and its low-carbon transition investment incentives are in focus. If Republicans control Congress, they may revise or repeal parts of the IRA to fund tax cuts.
It’s already been a busy election year. In India, Prime Minister Narendra Modi secured a third term to lead the government but will need coalition support after failing to win a majority last week. That could slow some reforms – but it doesn’t change the long-term benefits from the confluence of mega forces, like a young population and digitalizing economy.
Mexico’s election saw the ruling coalition score a resounding win that points to continuity. We see both India and Mexico benefiting from a rewiring of global supply chains. Though in Mexico, a new president and government rolling out broad reforms could weaken institutional checks and balances.
Even as right-wing and populist parties performed well in the European Union elections, centrist parties are expected to keep overall control of the European Parliament. Yet the performance of governing parties will have repercussions, such as President Emmanuel Macron calling a snap election in France after his party suffered a big loss.
The U.K. votes in early July rather than in late 2024 as originally expected. A decisive victory for one party could create the political breathing space to address the U.K.’s structural issues, such as weak productivity growth. Beyond potential policy changes, a July election could allow the Bank of England to start cutting rates once it’s over – a reason why we like U.K. bonds.
Bottom line
We stay overweight U.S. stocks for now and eye the key policy areas of the presidential election. On a strategic horizon of five years and longer, we like government bonds in the euro area and UK on expectations for lower interest rates.
Jean Boivin is Managing Director, Head of the BlackRock Investment Institute at BlackRock Inc.
Wei Li is Global Chief Investment Strategist, Blackrock Investment Institute at BlackRock Inc.
Christian Olinger, Portfolio Strategist – BlackRock Investment Institute, and Ann-Katrin Petersen, Chief Investment Strategist for Germany, Austria, Switzerland and Eastern Europe – BlackRock Investment Institute, contributed to this article.
Disclaimer
This material is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The opinions expressed are as of the date indicated and may change as subsequent conditions vary. The information and opinions contained in this post are derived from proprietary and nonproprietary sources deemed by BlackRock to be reliable, are not necessarily all-inclusive and are not guaranteed as to accuracy. As such, no warranty of accuracy or reliability is given and no responsibility arising in any other way for errors and omissions (including responsibility to any person by reason of negligence) is accepted by BlackRock, its officers, employees or agents. This post may contain “forward-looking” information that is not purely historical in nature. Such information may include, among other things, projections and forecasts. There is no guarantee that any of these views will come to pass. Reliance upon information in this post is at the sole discretion of the reader.
© 2024 BlackRock Inc. All rights reserved. iSHARES and BLACKROCK are registered trademarks of BlackRock, Inc., or its subsidiaries in the United States and elsewhere. This article first appeared June 10, 2024, on the BlackRock website. Used with permission.
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