What’s happening in 2024?

2024 is a big, big year for elections. 40% of the world’s voting-age population live in countries that will hold national elections. Not only is this number huge, it’s also spread across some serious players on the global stage.

Citizens in the UK, US, India, Russia, and Mexico – to name only a handful – will all head to voting booths this year. Some of these countries, like the US and UK, are established economies. But a lot of others on the list, including India, Russia, and Mexico are what we refer to as ‘emerging market economies’. Here’s a brief overview of what might happen. Emphasis on might!

UK

In the UK, many pundits, experts, and polls currently expect the Labour Party to gain power for the first time since 2010. Current voting intentions as published by Politico put Labour at 45% of the vote, and the Conservatives at 25%.1

US

In November, voters in the US will likely face a choice between former president, Donald Trump and the incumbent, Joe Biden. Biden’s currently working with a 54.3% disapproval rating, while 52% of Americans have an unfavourable opinion of Trump.2

The normal expectation for US elections – from Clinton’s first term in 1992 to Obama’s second term in 2012 – was that the incumbent would be reelected. Trump broke this trend when he lost to Biden in 2020, and Biden looks set on trying to be a two-term president. So 2024 has everything to play for.

Emerging markets

Focusing solely on the economy, India’s Narendra Modi has ushered in a period of stability and expansion. He’ll be hoping to win a third consecutive term, and victories for his Bharatiya Janata party (BJP) in December’s state elections have given him a decent boost.

Russia’s elections are easier to call – expect Putin to retain power. With that comes a probable continuation of the war in Ukraine, which will enter its third year on 22nd February this year.

Mexico will have a historic year. Both of the frontrunners are women, and both women are less populist than the incumbent. Populists tend to encourage discontent, either towards the far left of the political spectrum or the far right. Politicians from parties at the centre of the spectrum are, in most cases, more effective at compromise.

 

Can national elections affect the markets?

To answer this question we need to look at markets before and after an election. Markets hate uncertainty and when it comes to elections, close calls can cause chaos. That’s because it’s harder to control risk when the outcome is uncertain.

So in the build up to elections, especially elections that are on a knife-edge, market activity tends to stall. Buying and selling will slow down, and investors will take a more reserved approach. On the other hand, if the result is fairly certain, markets usually post gains before, during, and after the election is held. Two clear examples demonstrate this: the 2010 and 1997 UK elections.. 

2010 saw a coalition government in the UK. Coalitions are by design uncertain – which parties will be able to work together to achieve a majority? Which electoral pledges will be solidified and which will be forgotten in the backroom horse trading of Westminster? This meant that the market, which had been rising for much of 2010, began to stagnate in the build up to the 2010 election. 

The expected result was unclear, and so markets were uncertain before the election was held on 6th May 2010. This was made worse when the result was announced and the political negotiating to form a coalition government got underway (the FTSE 100 lost 4.04% between 6th May and 6th June).3 But once the new coalition government had been formed and certainty was restored, markets began to rise once more (the FTSE 100 posted a gain of 12.57% from 6th June 2010 to 6th December 2010).3 It’s worth noting that politics wasn’t the only thing that would’ve moved the markets during this timeframe. 

In contrast, 1997 saw the rise of Tony Blair and New Labour. People expected him to win, and win big. The FTSE 100 confirmed this confidence, with the index rising 12.1% between 25th April 1997 (one week before the election was held) and 1st August 1997 (three months after the result was announced).4 

So in a nutshell, it’s uncertainty that causes national elections to affect markets – more than speculation about who is going to win. Party politics has been part of market cycles since voters have been casting ballots and yet, the stock market has historically risen over time.

Plus, elections and their short-term impacts shouldn’t mean much for retail investors like you or me. After all, investing is a long-term game and we shouldn’t be making investment decisions based on who is in office.  

 

FTSE 100

The FTSE 100 ended the first month of 2024 down 0.75%.5 It’s not huge, but it’s something to keep an eye on. Metals and mining companies, which are big components of the UK stock market, saw some declines, while healthcare was on the rise.

 

S&P 500

Across the pond, the S&P 500 quite literally reached new highs. The US market’s benchmark index saw a gain of 2.17% for January 2024, but it also achieved five days of back-to-back record highs in the latter half of the month.5 Market indices do hit new highs regularly in the long-term scheme of things and often they move onto new ones.

Interestingly, since the low of the previous bear market in October 2022, the index has gained a whopping 33%. What’s the lesson here? It’s the investor’s bread and butter – regular investing wins out every time. If you’d have sold your investments at the bottom of the bear market in October 2022, you’d have missed out on 33% worth of gains since then. 

 

1 Politico, National parliament voting intention, 31 January 2024

2 FiveThirtyEight (538/abcnews), 31 January 2024

3Google Finance, retrieved 31 January 2024

4 Google Finance, retrieved 31 January 2024

5 Google Finance, 31 January 2024