2024 U.S. Election Results: Impact on the Economy, Markets, and Financial Outlook

As the dust settles on the 2024 U.S. election, Americans and global investors alike are watching closely to understand how the new political landscape might impact their finances. With Donald Trump re-elected to the presidency and a Republican-controlled Senate, we’re looking at a wave of policy changes that could reshape the economy and markets. Whether it’s fiscal policies, tariffs, or deregulation, these shifts may have implications that could ripple across investments, the economy, and even everyday expenses.

Let’s break down the election outcomes and what they could mean for economic growth, financial markets, and—most importantly—your financial future.

1. Fiscal Policy and Taxes: What to Expect

Extending Tax Cuts and Increasing Deficits

The administration is expected to extend the 2017 tax cuts, which were scheduled to expire in 2025. These tax breaks have been popular with both individuals and businesses, as they increase disposable income and corporate profitability. However, an increase in fiscal spending, paired with these tax cuts, will likely expand the national deficit.

For individuals, extended tax cuts could mean more cash in hand and potentially higher consumer spending, which could support economic growth. For corporations, the benefits are even more pronounced, as tax savings can lead to reinvestment, share buybacks, or even dividends for shareholders.

But what about the national deficit? A growing deficit could eventually put pressure on interest rates or force the government to find new ways to raise revenue, which could mean tax changes in the future.

How This Affects You: In the short term, tax cuts might lead to increased spending power and could drive economic growth. However, it’s essential to stay mindful of longer-term economic factors like the national debt, which may affect interest rates, inflation, and future tax policies.

2. Trade and Tariffs: The Return of Trade Tensions

Higher Tariffs and Global Trade Implications

The Trump administration’s policies are expected to include a significant increase in tariffs on imports, especially from China. These tariffs are intended to boost U.S. manufacturing by making imported goods more expensive, potentially spurring demand for domestic alternatives. However, history has shown that tariffs often lead to higher prices for consumers and can escalate into broader trade disputes that impact businesses.

For global markets, a rise in tariffs could impact international trade flows, affecting companies with global supply chains and potentially leading to market volatility. For U.S. consumers, this could mean higher prices on imported goods and materials, which could have a knock-on effect on industries reliant on global trade, like technology and retail.

How This Affects You: Higher tariffs could mean higher prices on everything from consumer goods to construction materials, potentially driving up inflation. Investors should keep an eye on sectors that could benefit from these policies, like domestic manufacturing, while remaining cautious of industries that depend heavily on imports.

3. Deregulation: Less Red Tape for Businesses

What Deregulation Could Mean for Different Sectors

Another anticipated move is a push for deregulation, reducing government oversight in certain industries. Historically, deregulation has benefitted industries like energy, manufacturing, and finance by reducing compliance costs, often leading to higher profits and stock performance.

Deregulation could be a tailwind for smaller companies, which typically face proportionally higher costs due to regulatory compliance. As a result, small-cap stocks and industries like energy and industrials might see a boost from reduced regulatory constraints, which could translate to better returns for investors in those areas.

How This Affects You: If you’re an investor, industries like energy, industrials, and small-cap stocks may offer growth opportunities in a less-regulated environment. However, it’s wise to consider both the potential rewards and the long-term implications of deregulation, as changes can also lead to shifts in industry stability and consumer protection standards.

4. The Federal Reserve and Interest Rates: Navigating Inflation and Policy Uncertainty

Potential Influence on the Federal Reserve

President Trump has expressed interest in influencing Federal Reserve policy, aiming for lower interest rates and a weaker dollar. While the Fed operates independently, political pressure could affect its decision-making. Meanwhile, a combination of fiscal spending, tariffs, and deregulation might place inflationary pressure on the economy, which could in turn impact interest rates.

In the near term, the Federal Reserve may continue to cut rates to stimulate the economy. However, if inflation picks up, it might face difficult choices, balancing economic growth with the risk of rising prices.

How This Affects You: Interest rates can affect everything from mortgage rates to bond yields. In a low-interest-rate environment, borrowing costs remain favorable, but investors may need to rethink income-generating assets as bond yields adjust. Additionally, inflation can impact purchasing power over time, making it essential to consider investments that can hedge against inflation, such as equities or real assets.

5. Immediate Market Reactions: Stocks, Bonds, and the Dollar

Stock Market Optimism

Equity markets have responded positively to the election results, with the S&P 500 hitting record highs in anticipation of pro-business policies. Small-cap stocks, which often benefit from reduced regulation and domestic-focused policies, are also experiencing gains.

Bond Market Pressures

On the other hand, the bond market has seen rising yields, reflecting expectations of increased government spending and deficits. Higher yields may lead to shifts in fixed-income investing strategies, as bond prices adjust to the anticipated fiscal environment.

Strengthening Dollar

The U.S. dollar has strengthened in response to expectations of tariffs and higher bond yields. A stronger dollar could make U.S. exports more expensive abroad, potentially affecting multinational companies that rely on foreign revenue. However, a strong dollar also benefits consumers by making imported goods cheaper.

How This Affects You: For equity investors, pro-business policies could boost certain stocks, particularly in sectors like small-caps and U.S.-focused companies. Bond investors may need to adapt to the potential for rising yields, while international investors should be mindful of currency fluctuations that can impact returns.

The Bottom Line: What Investors Should Watch

The political landscape is evolving, and while many policy changes are anticipated, actual impacts can vary widely. Staying informed and adaptable will be essential as these shifts play out. For investors, potential opportunities may exist in domestic industries that benefit from deregulation and tax cuts, but it’s equally important to consider potential risks—especially as trade tensions and inflation pressures evolve.

Key Takeaways:

· Tax cuts and fiscal spending could support growth but may expand deficits and impact long-term policy.

· Tariffs might make imported goods more expensive, with potential inflationary effects and increased costs for businesses.

· Deregulation could provide opportunities in certain sectors, like energy, small-caps, and manufacturing.

· Watch interest rates and inflation trends, as they will influence borrowing costs and purchasing power.

Looking Forward

The 2024 election results are set to shape economic and financial conditions for the foreseeable future. Whether you’re focused on short-term market movements or long-term investment strategies, understanding how these policies could impact your financial landscape is key. If you are looking to navigate these changes, our team is here to assist you.

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Source: Mercer, 2024

Please note: The content in this article comes from individual opinions and experiences. The content should not be taken as advice coming from City National Bank of Florida. City National Bank of Florida does not offer tax, legal or accounting advice

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