Explore the economic impact of the U.S. presidential elections on global markets, trade, and investments with expert insights from Michael Sager.
With key policies on trade, tariffs, and taxation hanging in the balance, investors worldwide are closely watching the upcoming U.S. presidential election.
In a time of global economic uncertainty, this episode of Smart Advice explores the potential impact of different election outcomes. Featuring Michael Sager, Managing Director and Head of Multi-Asset and Currency Management at CIBC Asset Management.
Whether you're a seasoned investor or just getting started, understanding these dynamics can help you navigate volatility and make informed decisions for long-term financial growth. Tune in for Michael’s analysis and insights on how the election might shape your investment strategy in the months ahead.
[3:25] Michael: “Having a sweep of either for the Republicans or the Democrats enables more policy initiatives, which of course have the potential to have a much bigger impact upon economic outcomes and therefore the markets”
[07:17] Michael: “Both administrations, there's a commonality. There's not too many things they agree on, but one of them is that they need to restrict the economic growth, development, and technological development of the Chinese economy.”
[15:10] Michael: “The overall impact of all of these competing policies is likely to be relatively small, and to some extent it depends on the sequencing of the policy as to what the outcome for growth, for inflation, for equities, for rates, what that looks like through time.”
[20:39] Michael: “The best course of action is to look through that uncertainty, figure out long term investment goals and stay focused on those and stay invested again.”
Michael Sager is the Managing Director and Head of Multi-Asset and Currency Management at CIBC Asset Management. He is an experienced financial expert with a rich background in portfolio management and economic research from prestigious institutions like Wellington Management, JP Morgan Asset Management, the European Central Bank, and the Bank of England. Michael brings deep insights into global markets. He holds a PhD in Economics from the University of Warwick and a Master's degree in Economics from the University of London.
Michael’s work is focused on helping investors navigate complex financial landscapes by providing clear, actionable advice on asset management, currency strategies, and market outlooks. His expertise in understanding how political shifts, such as U.S. election outcomes, have an economic impact on global markets makes him a trusted voice in guiding individuals and institutions through uncertain times.
Connect with Michael Sager on LinkedIn.
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Carissa: Welcome to Smart Advice, a podcast, connecting you with real financial advice, investment strategies and economic trends, empowering you with insights you need to make smart decisions about your money. I'm CIBC financial advice expert, Carissa Lucreziano.
On November 5, Americans will head to the polls to elect the next President of the United States, Democratic nominee Kamala Harris, or Republican nominee Donald Trump. With deep economic ties to our neighbors through trade, investment and tourism, it's an election Canadians are watching closely.
Not only is the US Canada's biggest trade partner and vice versa, but we're also each other's biggest source of foreign direct investment. Millions of Canadians and Americans travel across the border for business and pleasure each year, injecting billions of dollars annually into each other's economies.
With two presidential candidates who have very different economic policies, the rippling effects of the election will be felt across the globe. Because the US is the world's largest economy, there's a lot of speculation on how the election will impact financial markets and investors portfolio performance, and depending on who wins, the impact to the financial markets could be very different.
Joining us today to discuss the US election market outlook is my colleague, Michael Sager, Managing Director and Head of Multi-Asset and Currency Management at CIBC Asset Management. Michael has years of experience in portfolio management and research from Wellington Management, JP Morgan Asset Management, The European Central Bank and the Bank of England.
He earned a Ph.D in Economics from the University of Warwick, and holds a Masters of Science degree in economics from the University of London. Michael is going to help us untangle the chaotic cycle of an election and the impact on market activity and what economic policies under a Harris presidency or second Trump presidency could mean for investors. I'm excited for this episode, and the topic couldn't be more timely. It's so great to have you here. Michael,
Michael: Hello, Carissa. I'm glad to be here. Thanks for the invitation.
Carissa: I watched a recent YouTube video titled US election market outlook, and it was a great depiction of the considerations and possibilities of outcome from the election, what could unfold, and this is so important for Canadians to understand. You mentioned that the presidential race is a toss up between a divided government or a Republican or Democratic sweep.
Events leading up to the US election have always drawn big anticipation for investors across the globe. You've discussed this often in your write ups. There's usually pre-election market volatility due to uncertainty of which candidate will win. And post election, there's usually a short term rally, regardless of who wins, but the type of rally which you mentioned in your video really depends on the election outcome. A Republican sweep, a Democratic sweep or a divided government.
What kind of short term reactions could we anticipate in the markets if it's a sweep versus a divided government?
Michael: Well, Carissa, I think that really is important, because having a sweep of either for the Republicans or the Democrats enables more policy initiatives which of course, have the potential to have a much bigger impact upon economic outcomes and therefore the markets. So, that really is the important thing here. And again, as you emphasize at the moment, it's a toss up.
We could see a Harris presidential win or a Trump. The Republicans appear to be a little bit ahead in the Senate race, but the Democrats appear to be ahead in the race for Congress. So that's the sort of division, Republican, Democrat, Republican, or some combination of that, where we're talking about a divided government, and that just limits whoever wins the White House from making substantive policy changes or enabling them to make those changes.
So that's definitely the first thing. The other thing, before we get into some of the bigger implications, is just, I think it's always worth looking back through history to give context. So if we go back to 1928, and look at all of the 24 elections that have happened since then, what was the performance of the S&P 500 for example, in an election year versus a year without elections? The answer is, it was the same.
There was no significant difference. So if we're going to have a divided government, it implies, based on history and based on, you know, our intuition, that the impact on markets and economics will be relatively small. So we need to focus on the longer term drivers of markets: economic growth, inflation, Fed policy, technological innovation. All of those other long term drivers that really tell us where equity returns or bond returns end up over the long term. So that's particularly important to keep in mind in a divided world. Then we can talk about some of the specifics in one or other sweep as we continue the conversation.
Carissa: Yeah, and you talk about those bigger implications, let's, let's get into some of those. In Canada, we're accustomed to the influence US policy outcomes can have here at home. For instance, Canada has a heavy reliance on trade with the US. Canada sends about 78% of our merchandise exports to the US, and sources close to half of our merchandise imports from the US. What type of trade or tariff policies would we see under a Harris government or a second Trump government?
Michael: Yeah, absolutely. I think first up, there's a caricature painted in the media that Trump is all about tariffs, and the Democrats are not. But if you look back over the last four years, the Trump tariffs that were introduced during his first administration, particularly against China, have not been rolled back. In fact, they've been a little bit more. They've been increased a bit more.
So that's the first point. I think that both administrations, there's a commonality. There's not too many things they agree on, but one of them is that they need to restrict the economic growth development, the technological development of the Chinese economy. One way they've both sought to do that is using tariffs and now the Trump administration used tariffs more aggressively. But again, Biden-Harris haven't rolled back those tariffs they've added to them at the margin.
So that's important, I think that will be a continued trend trying to find ways to stifle the reliance of the US and its allies, like Canada, on the Chinese economy, and just broadly trying to limit the development from here on of the Chinese economy. I think that's the most relevant conversation on tariffs. We now look forward past November the fifth. The Trump administration, again, will probably be most aggressive and most targeted in terms of more tariffs on China. Again, it's from this geopolitical perspective primarily.
Could other countries get wrapped up into that push? Well, there's certainly some concern in Europe for the auto industry, for example. Then in North America, with both Canada and China, could a Trump administration levy a broad based 10% tax or tariff rather against all trading partners, including Canada and Mexico? Definitely a possibility. More likely it's a negotiating ploy to extract some benefits for the US economy.
These are all important concerns at the moment, we think the biggest target of tariffs, the easiest target of tariffs, will be China. That's where we need to think about implications most. Just to extend that discussion, what are the implications for markets from more tariffs? There it's fairly unequivocal, they lead to less growth and more inflation. At the margin, tariffs are negative for equities relative to what would have been the outcome without more tariffs. They lead to higher interest rates than would have occurred.
That's not to say the Fed won't continue to cut, it will. But it would do less with higher tariffs than without that increase in tariffs. So that's where we're at on tariffs. We're likely to see more against China. We sink the threat of more tariffs against Canada or Europe is more of a bargaining ploy and the margin they're not helpful to growth or to the outlook for market.
Carissa: Yeah, and that's important to know the consensus on the view one is more aggressive than the other. But the decisions, either way, whether you know it's a Harris win or a Trump win, will impact global decisions. Interesting as well the correlation on tariffs to equity performance and interest rates,
Michael: I think so and just to add ,Carissa, again it's important to emphasize that these are not really substantial market impacts. For example, if you go back and think about the size of some of the policy initiatives in 2016 or 2020 they had, at least initially, quite big impacts on markets. The policy initiatives, even under a sweep this time round, whether it's Harris or Trump, are relatively smaller. So we're talking about directional changes that have not seen change. Of course, again, we keep in mind that the biggest drivers at market are long term economic performance in particular.
Carissa: That's great to know you talk about financial markets and when financial markets react to economic policies, it's usually related to how those policies will affect corporate profitability. Trump and Harris' views differ widely on several issues, like regulation versus deregulation of various industries.
Deregulation was a central priority of Trump's first presidential term and is something he continues to support. Harris, on the other hand, has proposed regulation policies like imposing a federal ban on price gouging on food and groceries and capping out of pocket costs on prescriptions.
As an investor, how could this play out for market investment portfolio performance? For example, if you hold US equities in sectors like consumer staples or pharmaceuticals?
Michael: Well, I think it's a clear difference, as you identify between the two administrations on this policy. As you say, Trump is much more about deregulation. I would add in sectors like the energy sector, potentially the financial industry as well, where you might see that push for deregulation. Whereas, again, Harris, as you suggest, would be more inclined to add to regulations. I think, in broad brush terms, again, it's at the margin, it's a positive for growth.
Deregulation is a positive for growth driven by some of the sectors that we've identified. Whereas more regulation stifles investment, stifles innovation, and therefore negatively impacts growth at the margin. So that's again, definitely an area of difference that leads you in a different direction.
It's also for different sectors. There, I mean large cap versus small cap, as well as industry sectors. But it also has implications for domestic equity performance versus foreign. Again, that's something similar that we can draw from tariff performance too. I think all of these are definitely relevant.
Now we've identified two policies. Let's take a Trump win as the example. The two policies are contradictory. In the tariff policy under Trump would bias negative for economic growth. Deregulation would bias positive for economic growth.
So again, that goes back to my point that the overall impact of all of these competing policies is likely to be relatively small. To some extent it depends on the sequencing of the policy as to what the outcome for growth, for inflation, for equities, for rates, what that looks like through time. But definitely, each candidate has policies which are contradictory for economies and markets. So we have to think about the net.
Carissa: Let's talk about tax cuts and tax policies. They're always a hot topic around election time. Trump's government pushed through an overhaul of tax reforms for businesses and individuals through the tax cuts and job act of 2017. Many of the tax reforms for individuals are set to expire in 2025, leaving possibilities open for both presidential candidates to make their own changes in reforms. But Harris and Trump have very different views when it comes to taxes and how to boost the US economy. Can you talk to us about the disparities in Harris and Trump's proposed tax policies and how they could affect the economy. Yeah,
Michael: Yeah, definitely, this is, this is interesting. So you're right that Trump tax cut of 2017 and came into effect on the beginning of January 2018 is up for renewal in or it expires in 2025. The question is, does the US government renew it or not? I think unequivocally, a Trump administration again, let's go with a sweep of from the Republicans that Trump administration would renew everything. Personal tax cuts would solidify the corporate tax cut that was implemented.
It's quite possible that that Trump administration would actually do more additional tax cuts, additional fiscal stimulus. So really, from that perspective support growth. Harris, on the other hand, would, or is committed, to renewing the tax cuts for anybody who earns $400,000 or less, would introduce a tax increase for the most wealthy in society to partly pay for that tax benefit for the less well off. Then, in a Harris sweep outcome, would push for a corporate tax increase.
You can see from that mix of policies, that the fiscal stimulus to growth from a Trump sweep administration would be more powerful for growth. Whereas a Harris fiscal policy stance would be more neutral, more nuanced. Probably still stimulative, but also would have checks and balances. So again, now we've got for Trump, for instance, tariff policy, negative for growth, deregulation, positive for growth, fiscal stimulus, positive for growth. At the margin, and again, depending on the sequencing, it's probably a benefit to growth and therefore equities under Trump administration, particularly domestic US equities.
But again, the absolute impact there is probably much less than we saw either in 2016 in his first administration, or in the Biden administration that began in 2020. But directionally, quite interesting differences there.
Carissa: Yeah and it's interesting when you kind of put it all together, you know. The topic of tariffs, deregulation, taxes, like the outcome of the aggregate of those positive or negative and how that will stimulate or not stimulate the economy.
As we're recording this episode, there's less than two months to go until the US presidential election. Time is ticking fast. I know you have a ton of insights to share, but what are your key takeaways for investors as they ride out the market chatter and volatility leading up to November 5?
Michael: Well, I think it comes down to where we began the conversation that there's always market uncertainty, there's always event risk and challenges to be confronted by investors. I hope that our conversation has made clear that this is a pretty intricate conversation in terms of implications for growth, inflation, markets that we're trying to navigate through. It's possible to get acute when you're faced by event risk.
I think history has proven that the best course of action in the face of more uncertainty. Certainly over the next two months, we expect a pickup in market volatility and more uncertainty. The best course of action has always been to look through that uncertainty. Figure out long term investment goals and stay focused on those and stay invested again.
I think it's important to emphasize that whilst this election may be different from the previous 24 over the last century or so. It's important that we're not living in a vacuum and that factors other than long term, other than elections, rather, have greater long term impact on portfolio and performance. Again, I'm talking about economic growth, trends in inflation, central bank policy, innovation. All of those impact interest rates and corporate profitability.
So therefore the outcomes for equity markets, for fixed income markets, typically much more than any one election. Again, my advice with that context would be to stay invested, stay focused on long term goals.
Carissa: Thank you. There's a lot to pay attention to with this overall topic that we've discussed today. Michael, thank you so much. You've helped us clear some of that fog and really understand the important considerations and of the possible outcomes at the election and how that can affect global markets, us here at home in Canada.
I've heard three really important things in terms of investors that want to continue to focus on growing their wealth. It's, you know, stay invested and focus on long term goals. Stay well diversified within your portfolio and really long term market performance historically is not impacted heavily by an election. So thank you for all those insights.
Thank you for the topic today and going really deep into some topics in terms of our economy and the global economy at large. So thank you.
Michael: It's a pleasure.
Carissa: Whether a Democratic or Republican President sits in the White House, the stock market generally trends upwards over the long term. Elections create a lot of buzz and market uncertainty, but geopolitical events are just one of the many factors that influence how financial markets perform, or the latest insights and research on portfolio strategy and navigating the markets from Michael Sager and the CIBC asset management team.
Check out the CIBC Asset Management insights hub. If you are looking to boost your confidence and accelerate your personal financial plan and want to know how to maximize savings and invest your money, consider speaking with the CIBC financial advisor. In an ever changing economic environment, having a plan can help you feel focused and anchored. An advisor will provide expert and tailored advice and help build a plan towards achieving your financial goals.
Thank you for tuning in to this episode of smart advice. I'm Carissa Lucreziano. If you enjoyed this episode, feel free to share it with your social network. To make sure you never miss an episode, follow smart advice on your favorite podcast platform. For more financial tips, visit cibc.com/smartadvice