Why the Russia-Ukraine War Matters for the US Elections

Historically, domestic issues have been a focal point in the US presidential elections. However, with rising geopolitical tensions on multiple fronts, the persisting Russia-Ukraine war has become a controversial issue for the 2024 election.

With no end in sight to this conflict, Americans are looking for a strong leader who can take a firm stand during these challenges. While Donald Trump has repeatedly claimed that the conflict would never have started if he had been President, he also asserts that he can end the war within 24 hours of being elected. Kamala Harris, on the other hand, is expected to continue to follow Biden's foreign policy of supporting Ukraine, politically, economically and militarily.

What American Citizens Are Looking For

The US economy, especially the state of inflation, continues to be a primary focus for voters this year. However, foreign policy has gained prominence due to the heightened threats fuelled by the ongoing war in Ukraine, the heating up of the Middle East crisis and China's increasing assertiveness in various geographical locations, especially the South China Sea. This has made 2024 a year when Americans seek strong leadership during uncertain times.

Taking hawkish stances on international issues has been a hallmark of the campaign trail this year, with each presidential candidate vying to position themselves as the person who has the capability to play an important role in geopolitics worldwide.

A September 2024 survey by the Institute for Global Affairs reveals that Trump currently has an eight-point lead on Kamala Harris as a stronger leader in global affairs. Harris has been countering this perception with assertions about America maintaining “the most lethal fighting force in the world.” She has also argued that Trump attempts to “cozy up to tyrants” like Vladimir Putin and Kim Jong Un, which makes him “weak and wrong on national security.”

For now, the perception is that a Harris win would mean a continuation of support for Ukraine, in line with the Biden administration’s foreign policy. Meanwhile, Trump is expected to largely change that policy, limiting America’s support to Kyiv and forcing Ukraine to enter into negotiations with Russia.

Ultimately, domestic issues, such as immigration and inflation, will remain a top concern for voters in the upcoming presidential election. However, the 2024 election is likely to be decided by voting in crucial swing states, both candidates will need to take on strong positions for every issue and fight for every vote. Therefore, we cannot overlook the impact of international affairs on voting decisions.

How Will All This Impact the Markets?

There’s no denying that elections lead to market volatility. However, such influences tend to be short-lived with the longer-term outlook continuing to be determined by the usual economic, corporate and geopolitical factors. Having said that, a Harris win could have a very different impact from a Trump win, especially on the stock markets.

For instance, Kamala Harris’ focus on housing and renewable energy makes these two sectors clear winners under her presidency. The healthcare sector is also expected to grow, given that Harris is committed to healthcare reform. In addition, Harris has emphasized the regulation of big tech with a focus on promoting innovation. This is a positive for the tech industry. Also, with her focus on strengthening the economy and job numbers, interest rates could continue to decline. This would benefit rate-sensitive sectors, such as real estate and banking.

The positive market sentiment on the housing industry can already be seen in the performance of housing stocks like DR Horton, which had risen almost 24%, as of October 10, 2024. Acuity's AssetIQ widget also reflects a bullish sentiment for the stock.

On the other hand, there have been concerns regarding the impact of a Trump presidency on the US economy, given Donald Trump's hardline approach to tariffs.

Since he has suggested an up to 60% increase in tariffs on US exports, some experts believe that Trump 2.0 could subtract 1.5% from the US GDP and adversely impact corporate profits. Others have gone so far as to state that inflation could rebound due to such tariffs, which could force the Federal Reserve to either keep interest rates higher for longer or raise them. This could strengthen the US dollar, which would be a headwind for stock prices.

The Bottom Line

Regardless of who wins the election, the strength in the AI segment is likely to keep the stock markets buoyed, possibly even outweighing macroeconomic concerns.

In fact, Goldman Sachs has raised its target for the S&P 500 from 5,600 to 6,000 for year-end 2024 and from 6,000 to 6,300 for 2025. This increase is driven by expectations of higher margin growth for companies and a stable macroeconomic outlook for next year. US indices have had a good year so far, with the S&P 500 up more than 22% YTD, as of October 10. The bullish sentiment for the index is also reflected by Acuity’s AssetIQ widget.

So, before shifting portfolio allocations, it is best to analyse the long-term fundamentals and economic outlook. Meanwhile, robust analytics and the support of powerful research tools can help navigate short-term market volatility.