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Positioning for the 2024 U.S. Presidential Election

July 24, 2024 | 4 min read
Seema Shah
Chief Global Strategist
Chris Payne
VP & Head of Government Relations

The 2024 U.S. election

Calls from senior members of the Democratic party finally became too great this past weekend, with President Biden bowing out of the 2024 U.S. Presidential race. He will not be seeking a second term.

The word from Washington D.C. the past few weeks, which became louder following the President’s much maligned debate performance in late June, was that a shakeup of the Democrat’s ticket may be coming. Now, with President announcing via social media on Sunday that he would be bowing out, and by endorsing Vice President Kamala Harris, it sets in motion a series of fairly unprecedented challenges facing Democrats ahead of their national convention, starting August 19 in Chicago.

Regardless of who faces off against former president Donald Trump in November, the U.S. political climate has rarely felt more polarized. With daily headlines highlighting concerns over inflation, persistent economic fears, and ongoing disputes in Washington regarding the budget, immigration, and foreign policy, it is also entirely natural for investors to worry about the lasting impact of politics on markets, the economy, and their portfolios.

Luckily however, we get to witness that impact on investing every four years in the United States. And since 1933, the S&P 500 has averaged double-digit gains, whether Democrats or Republicans occupy the White House. So, while the political unknowns faced between now and November 5 will undoubtably overwhelm, and the candidates will make galvanizing speeches touting the merits of their policies, and the flaws of their opponents, it's important for investors to stay focused on their long-term goals, and not get swayed by short-term political rhetoric.

What is the path forward for the Democrats?

Not since Lyndon Johnson in 1968 has an eligible incumbent president not advanced to represent their party for the general election.1 When then-president Johnson announced that he would not seek re-election, it was in late March of 1968 – a full 4 months earlier than President Biden just did. Needless to say, the timeline for the Democrats today to agree to a candidate and run a campaign is significantly compressed.

While Vice President Harris has received Biden’s endorsement and significant public support from convention delegates, she is not yet officially the party’s nominee. Here are the likely next steps for Democrats, and Harris, as outlined by AP Reports.

Lagging popularity, and an economy that surprisingly isn’t helping…

Heading into the weekend, former-president Trump was ahead of Biden in national polls and 7 key swing states according to RealClearPolitics average polling, up by 3.0 in the general election.

President Biden’s lagging popularity with voters was perhaps surprising. Typically, a strong economy benefits the incumbent, and the U.S. economic backdrop is very positive, defying recession expectations and outperforming most other major global economies. Real GDP grew over 3% last year, real disposable income growth has been strong, and the unemployment rate is just 4.1%. Yet, Biden was not benefitting from this strong macro environment. Instead, voters appeared more focused on two factors – languishing house price affordability and still elevated inflation – both likely amongst the most important “real world” economic issues that, as Fed Chair Powell often notes at FOMC meetings, “impact people from all walks of life, particularly lower income groups.”

Contribution to headline U.S. inflation
Year-over-year, January 2015-present

Chart showing the year over year change in news headline topics from 2015 thru 2024, tracking Food, Core Services, Energy, etc.
Source: Bureau of Labor Statistics, Principal Asset Management. Data as of July 11, 2024.

Despite a positive economic backdrop for corporates and markets, the economic malaise felt more directly by households goes some way to explaining Biden’s disappointing ranking in the polls. However, the exit of Biden from the race, and likely nomination of Harris, does not change the fact that the economy’s performance in the run-up to the election – specifically, inflation, interest rates and unemployment, will likely have a significant impact on voting behavior in November.

Perspectives approaching November for investors

The immediate fallout from President Biden’s announcement to not seek re-election has had little to no impact on markets. Similarly, Democrat’s choice to nominate Harris, or any other candidate to face-off against Trump in November will likely be the same. So, despite the headlines, markets are telling investors that it is the policies on things like trade, regulation, energy and taxes that need to remain in focus.

Trump’s policies and positions have broadly been already digested by markets. Equally, it is likely that whomever the Democrats nominate will have similar agenda to the one that President Biden had been campaigning on. Therefore, in an economic environment where the policies – not the candidates – should be the focus, the political transition, though significant, is less likely to cause immediate market turbulence compared to the specific policy directions that follow.

1 Technically, Johnson had already been president for more than 4 years, having become president during 1963 following John F. Kennedy’s assassination, then defeating Barry Goldwater in 1964. He did not run in 1968, despite being eligible to do so.
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