With an assassination attempt and a late candidate swap, America's election ride has been wild. But what does it mean for stocks? No one really knows.
But the market couldn’t care less about the drama.
What matters is that uncertainty will prevail, fuelling election years’ normal second-half stock market surge, a US-based tailwind with global power. Let me show you why.
Headlines portray America’s election as a wild rollercoaster. Twisty and occasionally upside-down. The candidates’ personalities and colourful sound bites – usually unflattering – steal the spotlight.
But stocks look past this. They don’t care about candidates’ temperaments, gaffes or rhetoric. To markets, it is all noise, distracting from what really matters: Uncertainty will fall. We will get a winner, and markets will rally around them.
This is a massive tailwind. Stocks hate question marks. They make investors and businesses nervous, discouraging risk taking. Early in most election years, question marks and fears abound. Myriad candidates typically clog the party primary races. They compete by playing to their bases – the extreme fringes of both parties – touting extremely scary views.
Hence elevated uncertainty usually stalls markets early in election years, when US returns average just 2.8 per cent in the first half since 1925.
But in the second half, uncertainty melts and stocks melt up.
Rowdy party primary races bring two nominees. Then we get vice presidential candidates. Party conventions render somewhat clear policy platforms. Rhetoric moderates as both sides court independent voters. State-by-state polls come into focus, showing investors each candidate’s path to victory – and how wide it is.
Meanwhile, with Congress out campaigning, legislation grinds to a halt. Markets gain clarity and need not fret sudden policy disruptions. They love it!
The S&P 500 averages 9.2 per cent in US election years’ second halves. Fun fact: This includes 15 years with positive first halves. Of these, the second half rose all but once in history (1948), with 8.9 per cent average returns.
This year started as an apparent exception. A rematch between President Joe Biden and former president Donald Trump looked destined, bringing unusually early low uncertainty. Absent scary primary noise, stocks shined.
Mr Biden’s late-June debate stumble changed everything, amping up switcheroo talk. Then came the abhorrent assassination attempt on Mr Trump. Soon, Mr Biden dropped out, endorsing Vice President Kamala Harris. Early rumblings emerged that some top Democrats didn’t think she was viable. Would they coronate her? Or would the mid-August party convention be a multicandidate cage fight? All seemed to stoke uncertainty.
But it stabilised fast. Post-debate poll numbers initially swung a bit from Mr Biden to third-party candidates, but they evened out. After the assassination attempt on Mr Trump, stocks kept rising. Ms Harris quickly attracted endorsements and top Democratic donors. As I write, we have only a handful of polls pitting her against Mr Trump. But they have tightened from Mr Trump’s early-July margins over Mr Biden.
This doesn’t seal the deal for her. Honeymoon periods normally boost polling but usually don’t stick. Then came the drama of who she would pick as her running mate. Regardless, by mid-August, we will have two decisive candidates, which means more clarity. The victory path will coalesce. Not with national polls. America votes state-by-state, via the Electoral College. Most states are already locked in. America’s best election site, 270toWin.com, shows just five currently up for grabs: Nevada, Arizona, Wisconsin, Michigan and Pennsylvania. To these, I add Georgia, which waffles between toss-up and likely Mr Trump.
This gives Mr Trump a baseline of 235 electoral votes versus 226 for Ms Harris. The winner needs 270. Now comes the harder, more crucial campaign battle: building late-stage ground games to mobilise marginal voters in these swing states. This takes money and know-how. The Democrats have more money, but Mr Biden’s debate flub revealed hidden weakness in states they assumed were safe: Minnesota, New Jersey, New Hampshire, Maine and even Virginia.
They have sufficient cash for TV and direct mail blitzes there. But can they build the ground game without distracting from the swing states?
Ms Harris’s success hinges on this. Her only real path to victory runs through Pennsylvania. If Mr Trump wins this, he almost certainly wins Georgia, a much more Republican state. That gets him to 270. Will Ms Harris turn out enough city and suburban voters to win? Or will Mr Trump rally the more rural and industrial base?
Either way, we will have a winner, making stocks party hard late in the election year.
And after? Stocks’ 2025 political impact hinges on the government’s make-up, including both houses of Congress. If golden gridlock continues, squashing market-menacing bills, stocks should love it. If not, risks may lurk.
But 2025 is distant and too early to assess today. For now, simply enjoy late 2024’s great stock market.
Ken Fisher is the founder, executive chairman and co-chief investment officer of Fisher Investments, a global investment adviser with $250 billion of assets under management
