Another presidential election is less than 11 months away and that means with the calendar soon turning to 2024, clients are likely to have an increasing amount of questions regarding how various electoral outcomes will affect their portfolios.
Given the 24-hour, internet-driven news cycle in which we live, it’s reasonable to expect that as 2024 unfolds, clients will be served a daily dose of election bloviating and prognostications courtesy of talking heads on both sides of the aisle. Polls, for what they’re worth these days, will only add to the confusion, making advisors’ jobs that much more difficult in 2024.
Compounding that issue for advisors is the point that regardless of political proclivity, clients are increasingly politically sensitive. Problem is electoral politics have a way of adding to investors’ anxiety, of which they’ve already got plenty due to rising interest rates and stubbornly high inflation, among other factors.
Said differently, advisors would do well to eschew overt endorsements of particular candidates and keep election conversations focused on potential portfolio impact and investment ideas. Read on for tips on helping clients deal with election news flow in 2024.
Expect Deficit, Inflation to Be Prime Election Issues
Clients are likely tired of hearing about inflation, but they’re still contending with it and it, along with budget deficits, will be front-and –center as the 2024 campaign unfolds.
“Inflation is still a very high priority issue for voters. As we've noted, an elevated level of concern around inflation really disincentivizes politicians from pushing for legislation that could expand the deficit because it's seen as contrary to that mandate of fiscal austerity that comes in a high inflation environment,” notes Ariana Salvatore of Morgan Stanley’s U.S. Public Policy Research Team.
One issue for advisors to note is that assuming President Biden or another Democrat wins the presidential election and the party gains control of the House, it’s possible the 2017 Tax Cuts and Jobs Act will sunset in 2025. That might not much for deficits, but it is equivalent to a tax increase. It’s not a guarantee that will happen, but it is something to stay abreast of.
So is the potential of an altered Congressional composition. It’s highly possible that if either party controls both houses of Congress after the 2024 elections, there will be myriad sector-level implications for advisors to discuss with clients.
“Following the election, we think Congress will turn to legislative items like AI regulation, energy permitting, trade and tax policy. Obviously, each unique election outcome will facilitate its own level and type of policy transformation,” adds Salvatore. “But we think you could possibly see the biggest divergence from the status quo in a Republican sweep. In particular, in that case, we'd expect lawmakers to launch an effort to roll back, at least partially, the Inflation Reduction Act or the IRA, though we ultimately don't think a full scale repeal will be likely.”
Expect Another Nail-Biter
Obviously, it’d be wise for advisors to steer clear of rehashing past electoral controversies with clients, but it’d also be astute to prepare clients for the likelihood that the 2024 elections are likely to be close and there aren’t likely to be overwhelming majorities in either chamber of Congress.
Inflation and broader economic data are likely to hold clues regarding possible outcomes. That much is clear.
“Well, recent history suggests that it will be a close race. For context, the 2022 midterms marked the fourth time in four years that less than 1% of votes effectively determined which side would control the House, the Senate or the White House,” concludes Morgan Stanley’s Salvatore. “That means that elections are nearly impossible to predict. But we think there are certain indicators that can tell us which outcomes are becoming more or less likely with time.”