U.S. General Election 2024
U.S. Election Results | Republican and Democratic Party Policy Interpretations
This week's market focus is high, with the US presidential election, the US Federal Reserve Board meeting, and the fiscal policy announced by the General Assembly.
Although the results of the US election are hesitant to buy into details, it is not difficult to judge how the outcome will be, mainly because the elections are limited, since the elections are contested by Democrats and Republicans. THERE ARE ONLY EIGHT PREDICTABLE RESULTS (X PRESIDENT WINS +X PARTY WINS SENATE +X HOUSE WINS). To avoid complicating things too much, the author analyzes with four mainstream scenarios, which roughly led to what happened.
US election result 1: Republican wins big (Red Sweep)
This scenario has always been thought by the market to be bigger (including bookmaker odds, polls, market sounds, and a number of factors. In addition, the so-called chance is only one percentage point higher) that Trump wins and then the Senate is run by a Republican (Red Sweep). If this does happen, it is also worth paying attention to how many percentage points the president and the Senate have lost. In the main scenario, the market is anticipating further increases in fiscal deficit pressure in the United States, and inflationary pressures may recur, potentially leading to a further rise in debt.
As for the frequently discussed tariff issue, the market is widely regarded as the bargaining chip of the campaign, with little chance of that happening in the short term. In addition, with Trump's ample opportunity to move on policies related to tax cuts and deregulation, tariffs will offset each other, which will be relatively beneficial for US risk assets in the long run.
In this scenario, the most concerning will be the related performance of debt, followed by the impact of some trading partners on tariff changes and long-term cooperation. Although there are many risk factors involved, the market is more concerned about a series of policies that widen the deficit and stimulate the economy by Trump and the Republicans, so this is more favorable for US stocks.
US Election Result 2: Trump Wins But Separatist Government
This scenario represented a victory for Trump, but the Republicans failed to gain the right to speak in both houses of the House. The biggest difference between this and Red Sweep is that some tax reduction policies may not work out well, but the pressure to rise in the fiscal balance remains.
The result would be a weak red sweep, tariffs and fiscal deficits remain the focus of the market, just some fiscal policy stimulus or not expected in the medium term. This scenario is likely to cause some of the market's optimistic expectations to fall short, which is favorable in the long run, but the short line may face adjustment pressure. The strength of the dollar and the Fed's room for rate cuts will be the focus of the market.
US Election Result 3: Hong Kong Lai Wins But Separatist Government
Even if Hong Kong wins the presidential election, the market believes the Democrats will be hard to win in the Senate. In this scenario, the market widely assumed that the new president would introduce some bipartisan “tax cut and jobs bill.” Some corporate taxes and bottom-tier tax incentives will be the focus of the market.
In this scenario, the market is likely to be neutral on stimulus policies and less likely to be bullish, but as inflation is likely to be under control, both the dollar and debt are likely to head downward after the outcome, which will also benefit US equities as a whole. In addition, some concerns about international trade cooperation may ease, which will benefit countries with close cooperation with the United States and benefit emerging markets.
US election result 4: Democrats win big (Blue Sweep)
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To be honest, if this result occurs, the authors do not know how to react, nor do they know what the market will react to. Of the four scenarios, the market rarely considers and discusses the situation, mainly considering the performance of the Democratic Party in the past four years. If Blue Sweep emerges, the Democratic Party's hardline stance will be “through and through,” and markets may worry about tax reform in time, which may actively undercut majorities, increasing the likelihood of a wealth tax, asset value added tax, and stronger corporate regulation.
However, in this scenario, it is not a “black swan” event, and cattle fans should not worry too much, especially considering that these tightening policies will not take place in one fell swoop. This scene is just a further weakening of the dollar and debt.
Small summary
What the author wants to point out is that due to the high “visibility” of the US elections, there is little chance of a “black swan” event occurring unless extremely competitive results appear. Moreover, in addition to the US President and the Executive Party, markets are watching a series of US economic data performances. The top three indices of US stocks $S&P 500 Index(.SPX.US)$ $Nasdaq Composite Index(.IXIC.US)$ $Dow Jones Industrial Average(.DJI.US)$While volatility is likely in the short term, pundits remain less concerned about the performance of US equities in the fourth quarter. In addition, cow lovers can also take note $CBOE Volatility S&P 500 Index(.VIX.US)$ As a result, investors can roughly understand the latest changes in market sentiment from the VIX index in time.
Given the current overall U.S. economic performance and market confidence, U.S. stocks are likely to remain strong in the short term. With room for interest rate cuts in the coming year, the U.S. economy is expected to maintain lackluster growth in the short term. The outcome of the election is likely to have a greater impact on the FX market, while US equities are likely to continue to maneuver around the related topics of earnings and interest rate cuts.
Author Information
The author is a licensee of the Securities and Exchange Commission and its affiliates do not have any financial interest in the proposed issuer of shares mentioned above.
Tam Chi Lok
Chief Analyst of Futu Securities
CE No.CentralCode: AVJ390
