Author: Vlastimil Vilímek | Prague on 05.03.2024

In any business, it is important to have at least a basic understanding of world events and their potential impact on our business activities.

Let’s take a closer look at a topic that is currently attracting a lot of attention.

US election 2024: What economic changes are in store for us?

Is it still relevant to consider whether wise investors should support the Democrats or the Republicans?

Historically, elections have been accompanied by dramatic predictions about the market’s reaction to the election of a particular candidate.

For example, on the night of the 2016 election, when Donald Trump appeared to be beating Hillary Clinton, Paul Krugman, Nobel Prize-winning economist and New York Times columnist, predicted economic disaster with the assertion:

“The markets are falling. If you ask when the markets will recover, my first answer is never.”

But that prediction has not been borne out. Although the markets have gone through several swings during Trump’s presidency, the S&P 500 index rose 63% after he left office.

Similarly, some Republican supporters predicted a total market collapse during Barack Obama’s presidency, yet the S&P 500 index rose 176% during his eight years in office.

In Joe Biden’s first 33 months in office, the market rose only 14%, while George W. Bush’s first 33 months in office saw a decline of nearly 40%.

The data suggests that it is actually relatively irrelevant to the market whether the president is a Republican or a Democrat.

Political decisions have a significant impact. Regulation and tax policy impact the behavior of firms and individuals.

Fiscal stimulus is also key, perhaps even more important.

Pumping large amounts of money into the economy leads to increased consumption and entrepreneurship, which boosts corporate profits and ultimately stock values.

We have seen extensive fiscal stimulus in recent times.

Trump’s Tax Cuts and Jobs Act of 2017 has meant an economic stimulus of $3 trillion over 10 years, larger as a percentage of GDP than the entire New Deal under Franklin Roosevelt.

The CARES Act of 2020 added another $2 trillion.

In total, the Trump administration has authorized approximately $6 trillion in stimulus spending.

Joe Biden’s administration continued in the same vein, passing five stimulus bills totaling over $5 trillion.

It is clear that most of this government spending is deficit-financed, which has increased the US national debt to over USD 33 trillion.

Monetary policy is as important as fiscal policy.

For Biden, the era of zero interest rate policy is over.

Just 13 months after taking office, the Federal Reserve embarked on the steepest interest rate hike cycle in four decades, marking the end of easy gains.

What lies ahead in 2024?

The reality is that capable companies will find ways to prosper under any political leadership.

The key is to recognize these companies.

Remember that the essence of business is about setting acceptable levels of risk and creating strong business relationships.

We wish you a smooth collaboration with your new business partner and that it contributes to your continued prosperity.

Thank you for reading.

Vlastimil V.

Contact