BlackRock Warns: Here’s How This Intense Election Year Could Impact the Market By Investing.com

Investing.com – “Over half the world’s population goes to the polls in 2024. We look at the investment implications. We think governments and candidates have limited solutions to key financial issues for voters.” That’s what BlackRock said in its weekly market commentary on how this election year could affect stock markets.

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“We remain overweight U.S. stocks ahead of the U.S. election, but cautious about long-term U.S. Treasuries. Regardless of who wins, budget deficits will remain large. Elections in India and Mexico fueled market volatility, but we focus on long-term positives. July’s UK election supports our preference for the UK breast,” BlackRock explains.

US debt risk

“Global voters are expressing frustration on many issues, but especially the rising cost of living. However, we see many incumbents or challengers limited in any response, especially with high public debt somewhat tying their hands,” explains the asset manager.

Regarding November’s US presidential election, BlackRock notes that “epidemic borrowing increased fiscal deficits – the shortfall in government revenue versus spending. Regardless of who wins, deficits will remain historically large. Nor is it charting a path toward a sustained reduction in deficits. These deficits reinforce our view that the Federal Reserve will need to keep rates high for longer.”

“We track potential changes in US trade, immigration and energy policy – and see a likely rise in inflation regardless of who wins. On trade, Trump has suggested a more protectionist stance that would impose a 10% across-the-board tariff and A 60% tariff on Chinese goods is expected to maintain its current protectionist policies, such as higher tariffs on some sectors, industrial policies that favor domestic production and the use of export controls.

Other choices

It’s a very intense election year, says BlackRock. “The UK votes in early July rather than the end of 2024 as originally expected. A decisive victory for one party could create political breathing space to address the UK’s structural issues, such as weak productivity growth. Beyond potential policy changes, a July election could allow the Bank of England to start cutting rates after it’s over – one reason why we like UK bonds,” the asset manager points out.

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In summary, for now BlackRock remains overweight on US stocks and is watching the key policy areas of the presidential election. “Over a strategic horizon of five years and longer, we like eurozone and UK government bonds in anticipation of lower interest rates,” they add.

US stocks hit new highs last week and are up nearly 13% this year. The Bank of Canada and the European Central Bank cut rates for the first time since the start of the pandemic. “Markets are focused on how much central banks can cut rates – and are now split on whether the Fed will cut once or twice this year after strong US wage gains last week,” BlackRock notes.

“We do not see these rate cuts as the start of a cycle of multiple cuts given keeping inflation steady above the central bank’s targets,” they conclude.

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