Fragile markets vs. political risk

We believe periodic market disruptions are increasingly probable in late cycle. Enter the US election.

The US presidential election is possibly the key macro driver for the rest of the year. In our experience in dealing with the market impact of these geopolitical events, it is dangerous to assume we can predict the outcome.

As we’ve seen in the past few months, the best made forecasts can be thrown out by “events, dear boy, events”, as a former UK prime minister put it. At the time of writing, Kamala Harris is leading the race by a narrow margin. The bias in the electoral college means that she probably needs to be around 4% ahead on the national popular vote to win. A handful of swing states will sway the election.

An important difference between the two candidates is their attitudes towards international trade, where the presidency has significant executive discretion to impose higher tariffs.

On fiscal policy, the probability of a Democratic or Republican sweep of the White House and Congress is important. If that does not happen, we would expect fiscal stalemate to exert a drag on the economy in 2025. The Democrats have an uphill battle in the Senate, as they are defending twice as many seats as their opponents. But our US colleagues regularly urge us not to underestimate the likelihood of a sweep, with split-ticket voting in the US increasingly rare.