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This year over half of the world’s population heads to the polls as more than 60 countries hold national elections. Major democracies, including the US, will be electing new leadership—each with its own set of critical issues and potential policy shifts on the agenda.

Pivotal elections around the globe can have far-reaching implications for investors. Major elections include those in Mexico, France, the UK, India, Panama and beyond. In the US, the presidential race is poised to be one of the most closely watched in recent history, particularly given the dramatic events of the past several months. These include the live telecast of an assassination attempt on the Republican nominee, Donald Trump, as well as a surprisingly abrupt shift at the top of the Democratic ticket from Joe Biden to Kamala Harris. The gravity of these seismic developments have undoubtedly heightened public anticipation and scrutiny surrounding the race for the White House.

The results are expected to significantly shape both domestic and international policies, with direct implications for fixed-income investors. However, it’s important to remember that the majority of voters may already feel like they know what they can expect from Trump, given his first term, and from Harris, given her role as Vice President since 2021.

In this outlook, we explore the potential market implications of the 2024 election cycle through four distinct sections:

  1. Broader macroeconomic and market implications,
  2. Sector-specific expectations through the lens of the two likely administrations in the US,
  3. A high-level framework for understanding key global elections and their impact on fixed-income markets, and
  4. Why active investment in fixed-income remains prudent over passively holding cash during an election year.

It’s widely understood that election years can have a significant impact on fixed-income markets due to the uncertainty and potential policy changes arising from an administration change. Although this year’s US election campaigns are not primarily focused on economic policies—rather, social issues and personalities truly distinguish the two candidates—we’ll be watching closely for the direct and indirect economic implications, such as those related to fiscal policy, inflation, regulatory changes, immigration reform and more.

WHAT ARE THE RISKS?

All investments involve risks, including possible loss of principal. Please note that an investor cannot invest directly in an index. Unmanaged index returns do not reflect any fees, expenses or sales charges. Past performance is no guarantee of future results. 

Equity securities are subject to price fluctuation and possible loss of principal.

Fixed-income securities involve interest rate, credit, inflation and reinvestment risks; and possible loss of principal. As interest rates rise, the value of fixed income securities falls.

International investments are subject to special risks including currency fluctuations, social, economic and political uncertainties, which could increase volatility. These risks are magnified in emerging markets.

Commodities and currencies contain heightened risk that include market, political, regulatory, and natural conditions and may not be suitable for all investors.

US Treasuries are direct debt obligations issued and backed by the “full faith and credit” of the US government. The US government guarantees the principal and interest payments on US Treasuries when the securities are held to maturity. Unlike US Treasuries, debt securities issued by the federal agencies and instrumentalities and related investments may or may not be backed by the full faith and credit of the US government. Even when the US government guarantees principal and interest payments on securities, this guarantee does not apply to losses resulting from declines in the market value of these securities.

There are special risks associated with investments in China, Hong Kong and Taiwan, including less liquidity, expropriation, confiscatory taxation, international trade tensions, nationalization, and exchange control regulations and rapid inflation, all of which can negatively impact the fund. Investments in Taiwan could be adversely affected by its political and economic relationship with China.

IMPORTANT LEGAL INFORMATION

This material is intended to be of general interest only and should not be construed as individual investment advice or a recommendation or solicitation to buy, sell or hold any security or to adopt any investment strategy. It does not constitute legal or tax advice. This material may not be reproduced, distributed or published without prior written permission from Franklin Templeton.

The views expressed are those of the investment manager and the comments, opinions and analyses are rendered as at publication date and may change without notice. The underlying assumptions and these views are subject to change based on market and other conditions and may differ from other portfolio managers or of the firm as a whole. The information provided in this material is not intended as a complete analysis of every material fact regarding any country, region or market. There is no assurance that any prediction, projection or forecast on the economy, stock market, bond market or the economic trends of the markets will be realized. The value of investments and the income from them can go down as well as up and you may not get back the full amount that you invested. Past performance is not necessarily indicative nor a guarantee of future performance. All investments involve risks, including possible loss of principal.

Any research and analysis contained in this material has been procured by Franklin Templeton for its own purposes and may be acted upon in that connection and, as such, is provided to you incidentally. Data from third party sources may have been used in the preparation of this material and Franklin Templeton ("FT") has not independently verified, validated or audited such data.  Although information has been obtained from sources that Franklin Templeton believes to be reliable, no guarantee can be given as to its accuracy and such information may be incomplete or condensed and may be subject to change at any time without notice. The mention of any individual securities should neither constitute nor be construed as a recommendation to purchase, hold or sell any securities, and the information provided regarding such individual securities (if any) is not a sufficient basis upon which to make an investment decision. FT accepts no liability whatsoever for any loss arising from use of this information and reliance upon the comments, opinions and analyses in the material is at the sole discretion of the user.

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