What are the key remaining dates for the 2024 election?

The 2024 U.S. Presidential election race is well underway and has already delivered a host of surprising, unprecedented twists and turns. On the Republican side, former President Donald Trump officially secured the party’s nomination at the Republican National Convention (RNC) that kicked off on July 15^th. Trump also selected Senator JD Vance of Ohio as his VP running mate.

Meanwhile, after weeks of growing calls to step aside, President Joe Biden formally ended his campaign for re-election on July 21^st and endorsed his Vice President, Kamala Harris for president. Harris then officially secured the party’s nomination at the Democratic National Convention (DNC) with Governor Tim Walz of Minnesota as her VP running mate. From a policy perspective, Harris’s platform does not seem to differ materially from Biden’s, but her nomination has made the race more competitive. Betting markets swung from expecting a Trump victory and Red Sweep just prior to Biden’s campaign termination to expecting a very narrow contest between Harris and Trump following the DNC.

As election day nears, the next major catalysts will be the Presidential Debate on September 10, the Vice-Presidential debate on October 1, and ultimately the general election held on Tuesday, November 5th. The Electoral College officially casts its votes on December 17, and the new administration is inaugurated on January 20, 2025.

What is at stake in the Electoral College and Congress?

The presidential race will captivate voters most, but critical to a president’s success in implementing their agenda is the configuration of Congress, comprised of the Senate and House of Representatives. Here is what’s at stake, and the paths to victory for each:

Electoral College

The outcome of the 2024 US presidential elections will likely come down to just a few thousand votes in a few pivotal swing states, mirroring the close outcomes of 2016 and 2020. There are 538 electoral college votes available, and 270 are required to win. Most election experts have distilled this race to 7 battleground states, where the margin of victory is expected to be fewer than 500k votes. Those key battleground states are Arizona, Georgia, Michigan, Nevada, North Carolina, Pennsylvania, and Wisconsin.

In 2020, President Biden won the election with 306 votes, 74 more than former President Trump who earned 232 votes and 36 more than the 270 required to win. Although 36 votes may seem like a significant gap, in 2020, three states (GA, AZ, WI) accounting for 37 electoral college votes were determined by under 43,000 individual votes. Several races were called days after the election, and five races had less than a 2% spread of vots between candidates -- GA, AZ, WI, PA (won by Biden) and NC (won by Trump). 

Senate

The Senate currently consists of 48 Democrats, 49 Republicans, and 3 Independents that typically vote with the Democrats (ME, AZ, VT). There are 100 seats in the Senate and Senators serve staggered 6-year terms, so every two years, about one-third of the Senate is up for election. In 2024, 34 seats are up for election, 23 currently held by Democrats and 11 held by Republicans.

According to The Cook Political Report, there are three toss-up states, all currently held by Democrats: Nevada, held by Jacky Rosen; Ohio, held by Sherrod Brown; and Montana, held by Jon Tester. Democratic Senator Joe Manchin of West Virginia will not run again, so that seat is very likely to flip to the Republican party. The Republicans need two seats to control the Senate, or just one if they also win the White House as the vice president casts tie-breaking votes. Therefore, there is not much ground for Democrats to gain, and they are at risk of losing their slim majority. 

House of Representatives

All 435 seats in the House of Representatives are up for election every two years. The House currently consists of 220 Republicans, 212 Democrats and 3 vacant seats due to retirement. The Democrats would need to win 5 seats to take control of the House. According to Ballotpedia, there are 52 battleground districts, accounting for 13.1% of House races.

Votes or seats in the Electoral College, Senate, and House of Representatives 

What are the key policy issues for markets?

In the long run, it is policy, not politics, which matters most for the economy and markets. In the graphic below, we highlight several areas of contrast between the likely Democratic and Republican policy stances. The Democratic and Republican platform vary on many key policy issues, but there’s also some areas of bipartisan support on protectionist trade measures, a (partial) extension of the TCJA and improved immigration control. For markets, the focus will likely center on fiscal and trade/foreign policy implications. 

Taxes

Without the urgency of a recession or a pandemic to address, it is unlikely the next administration will champion major fiscal spending plans. However, many provisions in the 2017 TCJA Act are set to expire at the end of 2025, giving whoever is elected to the White House a chance to reset tax policy. A Trump administration would likely try to make the expiring income tax provisions permanent, explore new tax cuts, renew the business tax provisions from the initial years of the TCJA and consider new tariffs increases as budgetary offsets. A Harris administration would attempt to extend the expiring personal income tax cuts for all single filers making below $400K (or $450K for joint), attempt to raise the corporate tax rate to 28% from 21% (compared to the pre-TCJA rate of 35%), and allow the TCJA cap on SALT deductions to expire. Harris has also proposed an expansion of the child tax credit, new housing tax incentives, an extension of the health insurance premium tax credit and an increased tax deduction for startup expenses by small businesses. 

What are the implications of debt and deficit?

One critical topic that is likely to inspire heated debate is federal finances, particularly as fiscal fears contributed to driving bond yields higher in 2023.

The federal budget deficit was $1.7 trillion in 2023, or 6.3% of GDP, exceeding the 50-year average of 3.7%. This includes a $333 billion deficit reduction in fiscal year 2023 from student debt forgiveness that increased the deficit in 2022 but was later struck down by the Supreme Court in June 2023. Without this accounting adjustment, the budget deficit would have exceeded $2 trillion or 7.5% of GDP. This compares to a deficit of $1.4 trillion in 2022, or 5.4% of GDP, which does include the outlay for student loan forgiveness that was never spent. Prior to the pandemic, the deficit did not exceed $1 trillion and the deficit as a share of GDP was 3.8% in 2018 and 4.6% in 2019. Looking ahead, the Congressional Budget Office projects that deficits will be 5-7% annually over the next decade. This is likely to send U.S. debt to GDP well above 100% over the next decade.

Not only is the deficit historically high, but new borrowing is being financed at much higher rates after the Federal Reserve raised policy rates by 5.25%. Therefore, net interest payments on outstanding debt will be a large contributor to the deficit going forward. Net interest payments reached $659 billion in 2023, up from $413 billion in 2021 before the Federal Reserve began hiking rates.

While the political solutions are clear – raising taxes and cutting spending – the political will to do either will be limited. A Democratic president may be willing to let the 2017 tax cuts sunset at least partially at the end of 2025 but may expand spending. A Republican president may look to cut spending, but would likely extend the 2017 tax cuts, and perhaps propose new tax cuts. Of course, a president’s ability to pass any proposals into law would depend on the makeup of Congress. However, the net effect of either of these paths is unlikely to reduce the deficit from the trajectory it is on. 

How might the election affect stock market returns and volatility?

So far in 2024, markets have been relatively sanguine about implications from the U.S. elections. By Labor Day, the S&P 500 had already notched 38 new all-time highs with a strong 19.5% year-to-date return. In fact, history shows that election years tend to be good for U.S. stocks—or more accurately, most years tend to be good ones for U.S. stocks and elections don’t derail things all that much.

In the 23 presidential election years that have taken place since 1932, the S&P 500 finished the year higher in 74% of them for an average 6.2% return compared to an average 8.7% return in all of the years since 1932. However, averages don’t tell you the full story as some election years coincided with severe market drawdowns that had little to do with U.S. politics. Specifically, the burst of the dotcom bubble in 2000 and the GFC in 2008 were both election years and very challenging years for markets. Removing those two observations brings the average S&P return to 9.1% for election years. For similar reasons, average volatility since 1932 is somewhat higher in election years at 16.5% compared to 15.3% during non-election years. However, removing 2000 and 2008 from the sample again brings that average down to 15.3% for all other election years—the same as an average year of stock market volatility.

That said, elections do breed uncertainty and history shows this can cause some seasonality in volatility. As highlighted in the chart below, markets tend to be more volatile in the lead-up to the election, but after election day, that source of uncertainty is cleared, and, regardless of the result, markets move on and refocus on the fundamentals. In fact, median returns in the first three quarters of an election year were 1.9% compared to 3.1% in the fourth quarter going back to 1936.

Political uncertainty may be even more pronounced this year as vote-by-mail has grown in popularity and mandatory recounts could delay election results, as was the case in 2020. The eventual outcome of the election could potentially take days, or even weeks, following Election Day. However, eventually results are announced and the uncertainty is removed, typically resulting in better market performance.

However, market timing can be a dangerous strategy around elections. The two most recent presidential elections in 2016 and 2020 are prime examples of this. In the early hours of November 9, 2016, futures plummeted as election results were coming in, but markets closed 1.1% higher after that day’s regular trading session when the results were finalized, and markets rallied strongly after the 2020 election. In fact, in both cases there was a pre-election rally of 3% between the prior Friday and election day itself, so markets turned before many ballots were even cast. Some investors are eager to sit on the sidelines until election uncertainty passes, but risk missing subsequent rebounds which typically occur faster than investors can get back into the market.

How should investors approach investing in an election year?

Political opinions are best expressed at the polls, not in a portfolio. One cardinal rule investors ought to follow: Don’t let how you feel about politics overrule how you think about investing.

The chart below shows a survey from the Pew Research Center asking Americans how they feel about economic conditions. The results show that Republicans often feel better about the economy under a Republican president, while similarly Democrats often feel better about the economy under a Democratic president. Investors often make portfolio decisions based on their economic outlook.

Yet, average annual returns on the S&P 500 during the Obama administration of 16.3% and during the Trump administration of 16.0% were almost identical and higher than the average return over the last 30 years of 10.4%. It is likely the macro conditions, like ultra-low interest rates enjoyed during both Obama and Trump administrations, were a more influential driver of above-average returns during those periods, rather than the policy prescriptions each president espoused.

Investors who allowed their political opinions to overrule their investing discipline may have missed out on above-average returns during political administrations they didn’t like. 

How do returns look under different configurations of government?

Investors always want to know how markets performed under different configurations of government or different years of a presidency. How do markets perform under a Republican sweep or Democrat sweep? What if a Republican wins the White House but loses both chambers of Congress? How do returns look in the first year of a presidency?

This information is easy to compute, as highlighted below, but these returns tell investors very little about why markets performed the way they did and how markets are likely to perform in the future. Monetary policy, fiscal policy, economic growth, labor markets, corporate profits, and valuations are much better indications of future returns. Fiscal policy is driven by the government of course, but the configuration of the government matters and a sweep by one party doesn’t guarantee that it will accomplish all its campaign promises. In fact, due to growing political polarization, garnering consensus within a party is becoming increasingly difficult. For example, while the Democrats controlled Congress, President Biden had an ambitious Build Back Better proposal, which was later scaled down to a more moderate Inflation Reduction Act as a compromise between members of his own party.

Furthermore, just as calendar years are arbitrary markers when considering economic and market cycles, they also seldom align with actions of presidential administrations.

The economic context, not the political context, tends to be much more relevant to understanding historical market environments and returns. 

What configuration of government is best for the economy and markets?

As highlighted in a prior post, looking at returns during different government configurations tells investors little about why markets or the economy performed the way they did, and give little indication of how this could play out in the future.

The charts below highlight real GDP growth and S&P 500 returns during Republican (red), Democratic (blue), and divided governments (when one party does not control the White House and both chambers of Congress). Since 1947, real GDP has grown on average 2.8% under Republican rule and 4.0% under Democratic rule. The S&P 500 has returned 12.9% under Republicans and 9.3% under Democrats.

It would be easy to conclude that the economy performs better under Democrats and the market performs better under Republicans, but the sample sizes are relatively small. Republicans have controlled the government only 11% of the time since World War II, in the mid-1950s, early 2000s, and just before the pandemic. These were significantly disparate macro environments. Democrats have controlled the government 29% of the time, mostly in the post-WWII period and in the 1960s, but only in six years over the past three decades. Instead, the most common configuration of government is divided, which has produced 2.7% annualized real GDP growth since World War II, and 8.3% annualized returns on the S&P 500.