Global Markets On Edge: How US Elections Are Driving A Frenzied Market Mood

The 2024 US presidential election has gripped not only American voters but also investors and market watchers worldwide. US stocks ended election day with their strongest gains in six weeks, but this rally belies a deep-seated anxiety across global markets, with many bracing for prolonged volatility. As the world waits to see if Kamala Harris or Donald Trump will take the White House, international markets are keenly aware that the outcome could reshape economic policies, trade agreements, and investor sentiment across borders.

Why the US Election Matters to Global Markets

The US economy remains the largest in the world, making American political shifts impactful beyond its borders. Changes in US policies on trade, foreign relations, and environmental standards can have a far-reaching economic ripple effect. For example, shifts in trade agreements or tariffs can directly influence the GDP growth of other nations, while changes in defense spending or foreign aid policies may alter geopolitical alliances and market stability. As a result, international investors are acutely aware that the US election has the potential to redefine the global economic landscape and are bracing for a range of possible outcomes.

Market Sentiment and Election-Driven Volatility

Leading up to the election, global markets displayed typical “risk-on/risk-off” behavior, with investors shifting between assets perceived as safe (like bonds or gold) and higher-risk assets depending on polling data and election forecasts. This back-and-forth intensified as election day approached, driving up trading volumes and fueling speculation-driven volatility in major global exchanges like London, Tokyo, and Frankfurt.

The anxiety in the markets can largely be attributed to the unpredictability of this election's outcome, compounded by uncertainty over potential policy changes. If there is a clear winner, markets may stabilize, but a contested or delayed result could lead to a prolonged period of volatility, as international markets mirror the fluctuations seen on Wall Street.

Specific Global Sectors and Markets Most Affected

Certain sectors and markets worldwide stand to be directly impacted by the US election results:

• Energy Sector: Both candidates present markedly different visions for the energy sector. Kamala Harris’s emphasis on green energy and climate change policies would likely increase demand for renewable energy technology, which could affect global oil and gas companies and boost renewable energy firms worldwide. Conversely, Trump’s pro-oil stance could mean continued support for fossil fuels, maintaining the status quo for major oil-exporting nations.

• Tech Sector: As technology firms face potential regulatory shifts under either administration, tech companies with a global presence, particularly in Europe and Asia, are closely watching the election. A Harris administration might bring stricter regulatory scrutiny, whereas Trump’s approach might be more business-friendly, especially for larger corporations.

• Financial Sector: Large international banks, particularly those with extensive US operations, could see impacts depending on regulatory stances. Under a Harris administration, financial regulation could tighten, affecting global banks operating in the US and beyond. Trump’s administration may favor a lighter regulatory approach, which could sustain the current market structure.

Certain regions, particularly emerging markets, are particularly sensitive to shifts in investor sentiment stemming from the US election. Emerging economies are vulnerable to capital outflows if US interest rates rise or if the dollar strengthens significantly under different fiscal or monetary policies.

Key Global Economic Policies Under Scrutiny

The outcome of the US election could shape several key global economic policies with long-term implications:

• Trade Policy: Trade relations could look very different under each candidate. Harris might prioritize multilateral agreements and reduce tariffs, fostering more open trade relationships. In contrast, Trump has historically leaned toward protectionism, advocating for tariffs and trade barriers, which could strain relations with key trade partners like China and the European Union.

• Monetary Policy Expectations: Investors worldwide are also keeping an eye on potential shifts in US monetary policy, especially in relation to the Federal Reserve. Although the Fed is an independent institution, the administration’s economic policies could influence its approach to interest rates and inflation, which would have ripple effects on borrowing costs, currency values, and investments globally.

• Climate and Environmental Regulations: US climate policy could undergo a significant shift if Harris wins, likely creating new regulations on emissions and investing in sustainable energy. This would affect industries worldwide, especially in manufacturing and heavy industry, potentially leading to a global push toward sustainable practices. Trump, on the other hand, would likely continue a more relaxed stance on environmental regulations, easing pressure on certain industries.

How Foreign Investors Are Positioning Themselves

Foreign investors, wary of prolonged volatility, are taking precautions to safeguard their portfolios. Many are diversifying into safer assets, such as gold and government bonds, or reallocating funds toward less volatile sectors. Data from recent global fund flows suggest an increase in defensive positioning, with investors pulling back from riskier assets and seeking stability in markets like Japan and the European Union.

Additionally, some investors are using alternative investments and hedging tactics to mitigate risk. Currency plays, for instance, are becoming a popular strategy, with foreign investors shifting to currencies less correlated with the US dollar. Commodities like oil and precious metals are also seeing heightened activity as investors look to balance out potential losses in equities.

Potential Long-Term Effects of US Election Outcomes on Global Markets

The impact of this election could set global market trends for years to come. If Kamala Harris wins, a shift toward more regulated industries and green energy could lead to increased investment in sustainable technologies and create new market leaders in the renewable sector. Her potential emphasis on international cooperation and multilateral agreements could also stabilize trade relations, benefiting global supply chains and reducing trade tensions.

A Trump victory, on the other hand, would likely continue the status quo of lower regulation and pro-business policies, which may appeal to certain sectors but could lead to increased trade tensions and a more fragmented global market. Trump’s protectionist stance may challenge global economic cooperation, impacting long-term growth prospects for both developed and emerging markets.

Conclusion

The 2024 US election has underscored the interconnected nature of today’s global financial markets. As election results unfold, foreign investors are navigating an uncertain landscape, making careful moves to hedge against possible shifts in US policy. While Kamala Harris holds a slight lead, investors around the world are preparing for different scenarios and assessing the potential long-term implications on international trade, energy, and regulatory frameworks.

Ultimately, this election reflects the complexities of a highly globalized economy where political decisions in one country can send ripples through markets worldwide. In such a landscape, foreign investors recognize the importance of adaptability and diversification to weather the inevitable volatility of this high-stakes election.

Author: Brett Hurll