wealth management
wealth management
Podcast
28.3.2024
2024 is an important year for the USA, because after Joe Biden's four-year term of office, the coming months will determine whether he will move on to a second term or whether there will be a new president. While he is virtually unrivaled on the Democratic side, Nikki Haley and Donald Trump, who wants to move into the White House for a second time and has won the primaries so far by a large margin, are facing each other on the Republican side.
However, in addition to global political factors, the assertion of Republicans or Democrats will also steer America in different directions economically. The reason for this is that both parties have different approaches to dealing with the national budget. For example, history already provides clear data on possible capital market developments, allowing an initial forecast of what investors could expect from the fall.
If we start our analysis of the stock market as measured by the MSCI USA, a long-term upward trend can be seen at first glance - regardless of who was in the lead. But caution is advised. For while an almost continuous rise can be observed on the Democratic side (blue), we can see significant dips in Republican periods (red). So how can this be explained? One answer could be that the Republican economy is more susceptible to crises due to their policies. Once again this year, there is one particular issue that holds potential for an emerging economic and debt crisis: cutting corporate taxation and increasing military spending while maintaining high levels of government debt.
As the effective tax rate captures the actual tax burden on companies after possible optimizations, it provides a good indicator of the effects of different political strategies. While Democratic leadership has shown a steady to slightly upward trend since 1992, the picture is completely different for Republican leadership. Almost every presidential term in office since 1970 began with a significant tax cut. A wide variety of arguments have always been put forward for this, including an increase in economic growth. However, if we compare the timing of the two graphs, it quickly becomes clear that the cuts did not have an exceptionally positive impact on the market.
Nevertheless, Donald Trump has already announced his intention to cut corporate taxes again if he wins. A fact that would have a negative impact on the already high national debt in any case.
There is also a stark contrast when comparing the military budget. This has been subject to continuous cuts since 1990 under Democratic rule, while the opposite has occurred under Republican rule over the same period.
The reasons for this can be found in many ways in the political convictions of both parties, which can be seen equally in the currently favored candidates. For example, Biden is increasingly emphasizing the protection of democracy and allied nations, while Trump is simultaneously propagating putting the needs of his own country first in alliances and strengthening the military1. It can therefore be assumed that history is likely to continue in terms of corresponding expenditure.
Where costs are increased and income is reduced, an imbalance in the budget inevitably arises. This could befall America if a Republican takes office at the end of the year. Once again, the past data speaks for itself. While the national debt has followed a steady to slightly decreasing trend under Democratic leadership (with the exception of Barack Obama's first presidency, who had to deal with the consequences of the financial crisis), there has been a clear increase under Republican leadership.
If we now consider that the US is already heavily indebted at present and the probability of a recession in the next 12 months is high (see Capital Market Outlook February 2024), further pursuit of such an imbalance policy could have serious economic consequences.
If we now ask ourselves once again whether corporate tax cuts and taking on higher levels of debt are favoring an upswing on the stock markets, we can safely answer in the negative. Although the Democratic Party is pursuing a different policy, share prices have performed excellently under its leadership since 1992. In this context, it is to be hoped that the election result would be correspondingly positive for equity investments in the US alone.
In summary, it can be said that at least those interested in the financial markets and investors should hope for an election outcome in favor of the Democrats in 2024. After all, from a historical perspective, this should ultimately have a much better impact on the capital markets - especially in view of an impending downturn.
Statistically speaking, the probability of Biden being re-elected is 67 % - 80 % if there is no recession in the election year. However, if this does occur, only around 44% will win the race - 33% when measured since the Second World War.2
However, as the actual outcome depends on a large number of different factors, it is almost impossible to make a reliable forecast at this stage.
1 America First Agenda: PILLAR VI: Deliver Peace Through Strength and American Leadership, https://agenda.americafirstpolicy.com/strengthen-leadership, (as of March 6, 2024)
2 Matt Gertken, Jonathan LaBerge, CFA: A Potential Second Trump Presidency: Bullish or Bearish? 29.02.2024, BCA Research URL: https://www.bcaresearch.com/reports/view_report/39724/bca, p.24 (as at: 6.3.2024)
wealth management
28.3.2024
Reinhard Panse
In 2024, Democrats and Republicans will once again face each other in the US presidential election. A decision that will not only have political consequences. What predictions can be made for the capital markets in the event of a Biden or Trump victory? And what should investors hope for to ensure a good investment period?
2024 is an important year for the USA, because after Joe Biden's four-year term of office, the coming months will determine whether he will move on to a second term or whether there will be a new president. While he is virtually unrivaled on the Democratic side, Nikki Haley and Donald Trump, who wants to move into the White House for a second time and has won the primaries so far by a large margin, are facing each other on the Republican side.
However, in addition to global political factors, the assertion of Republicans or Democrats will also steer America in different directions economically. The reason for this is that both parties have different approaches to dealing with the national budget. For example, history already provides clear data on possible capital market developments, allowing an initial forecast of what investors could expect from the fall.
If we start our analysis of the stock market as measured by the MSCI USA, a long-term upward trend can be seen at first glance - regardless of who was in the lead. But caution is advised. For while an almost continuous rise can be observed on the Democratic side (blue), we can see significant dips in Republican periods (red). So how can this be explained? One answer could be that the Republican economy is more susceptible to crises due to their policies. Once again this year, there is one particular issue that holds potential for an emerging economic and debt crisis: cutting corporate taxation and increasing military spending while maintaining high levels of government debt.
As the effective tax rate captures the actual tax burden on companies after possible optimizations, it provides a good indicator of the effects of different political strategies. While Democratic leadership has shown a steady to slightly upward trend since 1992, the picture is completely different for Republican leadership. Almost every presidential term in office since 1970 began with a significant tax cut. A wide variety of arguments have always been put forward for this, including an increase in economic growth. However, if we compare the timing of the two graphs, it quickly becomes clear that the cuts did not have an exceptionally positive impact on the market.
Nevertheless, Donald Trump has already announced his intention to cut corporate taxes again if he wins. A fact that would have a negative impact on the already high national debt in any case.
There is also a stark contrast when comparing the military budget. This has been subject to continuous cuts since 1990 under Democratic rule, while the opposite has occurred under Republican rule over the same period.
The reasons for this can be found in many ways in the political convictions of both parties, which can be seen equally in the currently favored candidates. For example, Biden is increasingly emphasizing the protection of democracy and allied nations, while Trump is simultaneously propagating putting the needs of his own country first in alliances and strengthening the military1. It can therefore be assumed that history is likely to continue in terms of corresponding expenditure.
Where costs are increased and income is reduced, an imbalance in the budget inevitably arises. This could befall America if a Republican takes office at the end of the year. Once again, the past data speaks for itself. While the national debt has followed a steady to slightly decreasing trend under Democratic leadership (with the exception of Barack Obama's first presidency, who had to deal with the consequences of the financial crisis), there has been a clear increase under Republican leadership.
If we now consider that the US is already heavily indebted at present and the probability of a recession in the next 12 months is high (see Capital Market Outlook February 2024), further pursuit of such an imbalance policy could have serious economic consequences.
If we now ask ourselves once again whether corporate tax cuts and taking on higher levels of debt are favoring an upswing on the stock markets, we can safely answer in the negative. Although the Democratic Party is pursuing a different policy, share prices have performed excellently under its leadership since 1992. In this context, it is to be hoped that the election result would be correspondingly positive for equity investments in the US alone.
In summary, it can be said that at least those interested in the financial markets and investors should hope for an election outcome in favor of the Democrats in 2024. After all, from a historical perspective, this should ultimately have a much better impact on the capital markets - especially in view of an impending downturn.
Statistically speaking, the probability of Biden being re-elected is 67 % - 80 % if there is no recession in the election year. However, if this does occur, only around 44% will win the race - 33% when measured since the Second World War.2
However, as the actual outcome depends on a large number of different factors, it is almost impossible to make a reliable forecast at this stage.
1 America First Agenda: PILLAR VI: Deliver Peace Through Strength and American Leadership, https://agenda.americafirstpolicy.com/strengthen-leadership, (as of March 6, 2024)
2 Matt Gertken, Jonathan LaBerge, CFA: A Potential Second Trump Presidency: Bullish or Bearish? 29.02.2024, BCA Research URL: https://www.bcaresearch.com/reports/view_report/39724/bca, p.24 (as at: 6.3.2024)
About the author
Reinhard Panse
Reinhard Panse is Chief Investment Officer and co-founder of FINVIA Family Office GmbH. Until February 2020, Reinhard Panse was a member of the Management Board and Chief Investment Officer for HQ Trust GmbH, which is owned by the Harald Quandt family. From 2004 until joining HQ Trust GmbH in 2011, Reinhard Panse was Chief Investment Officer of the UBS Sauerborn business unit created within UBS Deutschland AG. From 2001, Reinhard Panse was a member of the Management Board of Sauerborn Trust AG and its legal predecessors. He was responsible for the investment strategy and played a leading role in the holistic asset management and administration of large private assets. Reinhard Panse began his career by taking over capital market and client support activities at Feri GmbH in 1989, after having founded and managed his own wealth management as managing director.
Dr. Benjamin Moritz is responsible for Quantitative Investment Research at FINVIA.
After completing his degree in business mathematics at Koblenz University of Applied Sciences, he worked at Sal. Oppenheim in Cologne from 2008 to 2018. There he managed the cross-divisional investment processes for the bank's strategic asset allocation and annual investment outlook. He was also jointly responsible for tactical asset allocation for institutional and private clients and was the portfolio manager responsible for five public and special funds.
In addition to his work, he completed his doctorate at the LMU Munich under Prof. Stefan Mittnik from 2012 to 2018. He presented his research work in the field of computer-based text analysis for asset allocation and machine learning for stock selection worldwide and received two awards. In 2018, he continued his career at the newly founded HQ Asset Management. There he developed an investment platform and cross-divisional investment processes for asset allocation and stock selection, where he integrated his research results.
Since 2017, he has regularly supervised students from LMU Munich, UC Berkeley and TU Munich, for example, on master's theses and industry projects on current investment research topics.
