Markets shrugged off Friday’s large downside surprise in the US nonfarm payrolls print, as well as softer-than-expected ISM manufacturing data, as they attributed the weakness to hurricanes and other transitory factors. Also, they have bigger concerns right now, most notably the US presidential elections that will be taking place tomorrow. The race for the White House has tightened up in recent weeks, with polls now suggesting that there is no outright favourite. This makes positioning for the elections difficult, especially given how high the stakes are.
A Trump victory would usher in significant change, with more protectionist trade policy, greater pressure to end the ongoing wars in the Middle East and Ukraine, fewer business regulations, significant tax cuts, and massive fiscal stimulus on the cards. A Harris victory, by comparison, would likely be more of the same. That track record isn’t all that commendable, particularly when considering that the US economy’s strength has been driven more by the Federal Reserve’s monetary policy than by any innovative strategies from the Biden administration.
Either way, US national debt is expected to climb a lot in the coming four years. This is more likely with a Trump victory, since a divided government (as opposed to a red sweep) under Harris would likely limit spending plans. In the more immediate short term, however, the concern is that the US’s socio-political fabric will be tested after the elections. The deep political division in the country will amplify scepticism around the election outcome, especially since concerns about voting requirements and security are widespread. When safeguards appear insufficient, trust in the process can waver, making accusations of misconduct more likely. Expect plenty of market volatility in the coming few weeks as the US political cycle turns.