Bracing for Election Impact: Investor Insights for 2024 and 2025
October 16, 2024
Heading into election season, investors face major questions: How will U.S. election outcomes affect the global economy? What steps can investors take to protect portfolios now? What sectors are most vulnerable – and which represent opportunities for growth – depending on election results?
Navigating potential economic impacts from the upcoming elections means weighing sector-specific trends as well as historical data. No matter which party controls the White House, working with Congress will be critical in shaping fiscal policy. A host of other, broader market concerns will also be at play.
Key Economic Issues for the 2024 Election
The 2024 election cycle centers on several pivotal economic issues that are crucial for voters and investors alike. Taxation policies are a hot topic, with the extension or modification of tax laws potentially affecting federal revenue and economic growth. Immigration policies also share center stage, influencing labor markets and demographic trends. Healthcare reform is another significant issue, impacting both personal finances and the broader economy. Trade policies, particularly with China and the European Union, are likely to affect international trade dynamics and global market stability. Additionally, federal spending priorities, financial regulation and interest rates could sway markets, with implications on inflation and consumer confidence. These key issues reflect the complex interplay between domestic policies and the global economic landscape.
Tax Cuts and Jobs Act
A potential significant shift in U.S. tax policy is on the horizon with the scheduled expiration of key provisions of the Tax Cuts and Jobs Act (TCJA) at the end of 2025. Several provisions from the landmark legislation will sunset by Dec. 31, 2025, resulting in an increase in individual income tax rates, a reduced standard deduction, reinstatement of the personal exemption, and a decrease in the child tax credit. Additionally, the special 20% tax deduction for many pass-through businesses could be eliminated.
For corporations, the ability to immediately deduct the costs of research and equipment, as well as certain interest expenses, is limited under the TCJA and requires action by Congress to extend these provisions.
Investors should be aware of the impact these changes could have on their portfolios. Consider strategies such as accelerating income into 2024 and 2025, and deferring deductions to later years when tax rates may be higher. Consulting with a tax professional now can provide personalized advice to prepare for these changes.
Global Economy
The 2024 U.S. election is also poised to have significant implications for the global economy and investments. Polls suggest a close race between presidential candidates, with each outcome carrying different potential impacts on international markets.
For example, global economic trends can be heavily influenced by the adopted policies and forecasted growth of the U.S. among the major world economies. While supply chains have largely recovered from pandemic snags, inflation remains high in many regions, which could be exacerbated or alleviated by the election’s outcome. Potential tariffs could also affect global supply chains and inflation rates.
Further, the global tax landscape is changing, with about 140 countries agreeing to a major restructuring of how multinational corporations are taxed. This move, proposed in February 2024 by the Organisation for Economic Co-operation and Development (OECD), will either be bolstered or hindered by U.S. participation. The chances of American buy-in depend largely on November outcomes, with U.S. business and investments in the balance if domestic policies do not align with the OECD’s international proposal.
In short, the policies of the winning party will shape economic trajectories for the U.S. and beyond. Investors should consider diversifying, focusing on stable sectors such as healthcare, utilities and consumer staples, and prepare for potential market volatility.
Historical Trends
Uncertainty surrounding election outcomes is prompting some investors to reduce portfolio risk. Historical data, though, suggests that market performance is not significantly influenced by either Republican or Democrat administrations. Instead, historical trends emphasize the importance of maintaining a long-term investment strategy rather than making reactive adjustments based on election outcomes.
Diversification remains a key strategy; spreading investments across various asset classes can help mitigate risk. Additionally, investors might consider hedging strategies to manage potential downside risks, especially in sectors that could be impacted by election outcomes.
A steady global investment strategy remembers that the U.S. elections are but one factor: more than 50 countries are holding national elections in 2024, including several emerging markets. It is crucial for investors to stay informed and build a holistic strategy in response to the ever-evolving political and economic environment. Consulting with an experienced financial advisor can help you tailor an approach that matches your individual risk tolerance and overall financial goals.
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Investment Advisory services are offered through Aprio Wealth Management, LLC, an independent Securities and Exchange Commission Registered Investment Advisor. Securities are offered through Purshe Kaplan Sterling (“PKS”) Investments, Inc., member of FINRA/SIPC. Aprio Wealth Management, LLC and Purshe Kaplan Sterling Investments, Inc. are separate and unaffiliated. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any securities, and past performance is not indicative of future results. Investments involve risk and are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed here.
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About the Author
Caroline Galbraith
Caroline Galbraith is a director and wealth advisor for Aprio Wealth Management and Dental Wealth Management where she helps high-net-worth individuals, families, and executives and business owners implement sophisticated and personalized wealth strategies to achieve their goals. She specializes in estate planning, wealth transfers, tax management, risk analysis and investment strategy.
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