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Recently, inflation and interest rates have dominated the headlines. And for good reason—they are known market and economic risks. But as we look toward the second half of 2024, investors must also be prepared to navigate the geopolitical risks, whose twists and turns can often lead into uncharted territory.
From U.S. politics to simmering hotspots across the globe, let’s assess what we know (and what we don’t) about these “black swans” on the risk landscape.
Presidential Politics
November's historic rematch between presumptive Democratic nominee Joe Biden and presumptive Republican nominee Donald Trump, with the added wild card of third-party candidate Robert F. Kennedy, Jr., has so far remained a background concern for markets. But as summer turns to fall, debates begin, and the conventions solidify nominations, campaign noise will likely intensify.
Recent history suggests the race will be tight, decided by a handful of swing states. Along the way, campaign rhetoric could spark short-term market volatility. Potential policy shifts under a new administration could also have market implications, but a lot can change before proposals become legislation.
Despite the uncertainty that is sure to come over the next six months, the election season tends to end well for investors. Today’s political environment in Washington makes it hard to pass wide-sweeping legislation. And investors don’t mind that. Stocks tend to go up no matter what the power-sharing agreement is in Washington. So, our advice is to remain calm, tune out all the noise, and vote in the booth, not in portfolios.
Historical Stock Market Performance Under Different Political Party Controls
Sources: Truist IAG, Strategas
Geopolitical Hotspots
No matter the winner, the next U.S. president will face a challenging global landscape. While not at pandemic peaks, risks are still elevated according to BlackRock's Geopolitical Risk Dashboard (see below), with several simmering hotspots:
Ukraine war. With the conflict well into its third year, the global economy continues to feel the impact on agricultural commodities. U.S. funding for Ukraine, future relations with Russia, and a potential resolution will continue to be important topics during the U.S. elections.
Israel-Hamas war. While the humanitarian impact of this conflict is significant, the economic impact has largely been muted. But the situation is volatile and must be monitored. Funding for Israel and the fate of hostages in Rafah will also play a key role in the U.S. election dialogue.
U.S.-China relations. Tension between the U.S. and China continues to linger. Trade policy, tariffs, and the future of technology access and availability for both countries will affect the relationship going forward. These same issues are also important drivers of the global economy, and investors should be focused on any resolution, progress, or setbacks on these topics.
Domestic issues. Other domestic issues carrying global implications include the deficit, our debt level, and U.S. dollar policy, which all go hand-in-hand with the level of interest rates and the ownership of U.S. debt. Future immigration policy (and its effect on labor supply), economic growth, and climate change proposals from the presidential candidates should also be on every investor’s radar.
Geopolitical Risk Level Has Markets' Attention
Source: BlackRock Investment Institute (as of June 2024)
Opportunities Ahead?
While the geopolitical path ahead is unsettled, markets already have expectations about these events and have discounted them accordingly. Staying vigilant to changes in expectations is certainly an important part of what we do. But at the end of the day, recognizing and capitalizing on these opportunities is key to navigating the shifting landscape.
To access our full 2024 Midyear Outlook, click the Read It Now button in the sidebar to your right.
