The upcoming presidential elections in the United States are like a hurricane. They can shift the stock market's direction and significantly affect the budget deficit, BlackRock experts suppose.
"Over half the world's population goes to the polls in 2024. We watch for investment implications. We think governments and candidates have limited solutions to key financial issues for voters," BlackRock noted.
The company believes this political event will greatly influence the stock markets.
Ahead of the US elections, BlackRock analysts are bullish on American stocks but cautious about long-term US Treasury bonds. They believe that regardless of who wins, the US budget deficit will remain high.
"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," the company said.
Regarding the US presidential elections, BlackRock points to the growing fiscal deficit, meaning the gap between government revenues and spending. They think it is unlikely that any winning candidate will chart “a path to a sustained reduction in deficits."
This situation leads to persistently high inflation. Consequently, the Federal Reserve will need to keep interest rates high for longer. "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," BlackRock pinpointed.
Currently, the company is monitoring potential changes in US trade, immigration, and energy policies. They warn about possible inflation growth regardless of who wins the election. They expect Joe Biden to maintain his protectionist policies by raising tariffs in several industries and tightening export controls. On the other hand, Donald Trump proposes an even more protectionist approach, with a 10% tariff on all goods and a 60% tariff on Chinese products.
Moreover, markets are trying to figure out how much the central bank might cut interest rates. Analysts are divided on whether the Fed will cut rates once or twice in 2024 after a sharp increase in US jobs.
Currently, BlackRock experts are watching key policy directions during the presidential elections. "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," the company emphasizes.