The US 2024 presidential election is set to be one of the most consequential presidential elections of modern times. Democrat incumbent Joe Biden is seeking a second term, pointing to his post-Covid recovery of the economy, while Trump, the first president to fail to secure a second term since George H.W. Bush, seeks re-election. If Trump were to win, his would be the first presidency to consist of two non-consecutive terms since Grover Cleveland in the late nineteenth century.

Notably, this will be the first election where each candidate has already served one term, offering voters the opportunity to assess past performance and make an informed decision.

With four months to go before voting, how will capital markets react in the weeks leading up to the election, given the lack of a clear favourite? And, more importantly, which presidency will impact capital markets, either positively or negatively, the most?

Apples and oranges

Former Commodity Futures Trading Commission (CFTC) chairman Chris Giancarlo served two-and-a-half years as a CFTC Commissioner under Democrat President Barack Obama, a presidency under which Joe Biden was vice president, and two-and-a-half years as chairman under Republican President Donald Trump. He was twice unanimously confirmed by the US Senate. Giancarlo foresees each of the potential president’s second terms to be distinct in a number of ways.

“In my experience, the way in which a president will operate in their second term is probably not too different to how they operate in their first term. And, in this election uniquely, we have both candidates who have already served one term,” Giancarlo said. “The wildcard, of course, is if either candidate were not to serve out their full second term due to their advanced age.”

“I think a second Trump term would show greater respect for the judiciary, with regards to financial services regulation, than a second Biden term. Under Biden, the Securities and Exchange Commission (SEC) was recently found to have engaged in ‘a gross abuse of power’ by a federal court and severely sanctioned for ‘undermining the integrity’ of judicial proceedings, engaging in misconduct and intentionally withholding evidence. No Trump-era financial regulator was ever so rebuked or sanctioned by the judiciary.”

James Angel, associate professor at Georgetown University in Washington DC, and who specialises in the market structure and regulation of global financial markets, believes if Biden is re-elected, the country can expect policies towards capital markets to remain as they are. “With so many other crises facing the government, I don’t expect a second Biden administration to have much appetite for major overhauls in capital market policy or regulation.”

On the other hand, Angel thinks that if Trump is elected, he will appoint Trump loyalists to the courts and the administrative agencies who will attempt to roll back Biden-era policies, most noticeably on climate change. “Trumpers will try to roll back the climate disclosure rules, assuming the courts haven’t already blocked them. In terms of tax policy, they will roll back incentives for electric vehicles. Look for a systematic dismantling of the Environmental Protection Agency (EPA) and the Consumer Financial Protection Bureau (CFPB), while packing the security apparatus and military with loyalists who will support their leader Trump no matter what,” Angel adds.

But Giancarlo believes that financial regulators under Biden may continue expanding jurisdiction “with or without” congressional authorisation on everything from mandatory climate disclosures, overreaching custody and data analytics, private equity investment and technology infrastructure to widely increasing the number of firms under SEC authority as securities “dealers”. The former CFTC chair also predicts that Trump would bring in experienced business leaders, whereas Biden could continue to rely on untried academics. “Under Trump, we had real life, business and markets experience at the CFTC, SEC and other Washington financial regulators,” he said.

Taxing times

Giancarlo also posits that, in a second Trump term, the SEC and CFTC may become more disciplined in enforcement, focusing on fraud and manipulation while reducing unnecessary actions, particularly the hoovering up of financial data. “I expect that the Trump administration will be much more sensitive to the unauthorised collection of financial data,” Giancarlo said.

James Fishback, chief investment officer at US-based multi-asset investment firm Azoria Partners, also believes a second Trump term would be more financial services-friendly than a second Biden term. “I think Trump’s presidency is by far going to be the best for capital markets, in large part because it was the best for capital markets when he was president, and not just for capital markets, for the real economy.”

Fishback points to Trump’s first innings as president, and how he “supercharged” the economy with tax cuts. “We’re going to see an extension of those expiring provisions of the tax cuts and Jobs Act of 2017 which supercharged the US economy, supercharged the stock market, by simplifying the tax code and by giving businesses more incentive to invest and to grow,” Fishback said. “I think late this summer, markets are going to start pricing in the economic benefits of a second Trump term.”

However, there are other concerns – including the issue of tax policy under a second Trump administration. Angel believes that when the Trump tax cuts expire at the end of 2025, there will be an increase in tax rates. “This forces Congress to actually do something, which will be very hard for a closely divided Congress to do. Given the massive deficit and huge national debt, Congress will have little flexibility to just extend the tax cuts. Taxes must go up in some way, it is just a matter of who pays, when, and how much.”

Angel says that tax policy is just a matter of figuring out who pays for what. “Anyone who says they want to cut taxes is lying if they don’t specify what government spending they want to cut. The pandemic panic of excessive stimulus and unprecedented Fed money printing have left a big hangover on the economy. Whoever is elected in November has a big problem with the deficit,” Angel adds.

Change of personnel

Rolling back “pointless” regulations, an emphasis on unilateral trade deals, and tariffs, would likely be mainstays of a Trump presidency, Fishback predicts. Biden has chosen to continue many of Trump 1.0 tariffs but has not used them in the geopolitical power projection way that Trump did, and will do if he wins, Fishback said.

He expects Trump to appoint a number of “strong characters” – such as reprising the role of Bob Lighthizer, United States Trade Representative in the Donald Trump administration from 2017 to 2021. “But obviously he would be great at Treasury as well. I think we’re going to see some really big policy areas that are going to affect Trade, Treasury, Legislative Affairs, his relationship with Congress, setting a budget and so on.”

Fishback thinks that trade would primarily be handled within the executive branch outside of the control of Congress. “And so that’s one area where President Trump can take leadership without being hemmed in by Congress, and we expect to see that,” he added.

If Biden lands a second term, Fishback expects some change of personnel but more of the same policy-wise. “I’d be surprised if [US Secretary of the Treasury Janet] Yellen sticks around. I think we’re going to see more of the same in terms of regulations, crippling investment and appointments that are just not pro-business and pro-capital markets.”

As SEC chair Gary Gensler’s term does not expire until 2026, Angel believes he will have a job no matter who is elected. “The SEC was designed to be a bi-partisan expert agency. No more than three commissioners can be from any one political party, and the commissioners’ terms are staggered. Thus, chair Gensler has a job until 2026 if he chooses to stick around,” Angel explains.

“Former Chair Jay Clayton quit and ran when Biden came in, making the position look more political than it was designed to be. Even though I am no big fan of chair Gensler, I hope he does not resign on 20 January because that would make the SEC even more political,” Angel says.

The Fed question

There are concerns that Trump plans to undermine the Fed’s independence, should he win a second term — media reports suggest that his allies have been drawing up plans that would challenge or limit the authority of the US central bank, including rumours that the would-be president himself would like to play a direct role in setting interest rates. Trump repeatedly criticised Fed president Jerome Powell during his first term, and interest around his potential plans for the Fed are central to market impact should he win a second term.

Any attempt to change the central bank’s structure would certainly have a divisive effect, especially as Trump has made it clear he plans to replace Powell (a chair he himself put into power during his first term) should he win again. But observers are divided — while some are fearful of the possible consequences of Trump exerting more control over the world’s most powerful central bank (“a truly frightening prospect,” said former president of the Federal Reserve Bank of New York, Bill Dudley, writing for Bloomberg), others, like Fishback, are more supportive.

Fishback suggested voters should look at how Trump dealt with the Federal Reserve under his first term. “He didn’t fire anybody.” On the Fed’s hesitation to cut rates, Fishback was unequivocal. “Let’s not forget that inflation hit 5% in June of 2021 and it took them nine months to respond with the first rate cut in March of 2022. This is not some infallible institution that has got it right. They’ve got it wrong almost at every single turn, to the detriment of the American worker, the value of his or her dollar and overall economic welfare.”

Therefore, Trump was right to criticise the Fed, Fishback believes. “There is plenty to criticise over the last couple of years. I think at the end of the day, some oversight and self-awareness and self-reflection from the Fed is overdue,” Fishback said.

Relief rally

Giancarlo says that, in 2017, incoming Trump financial regulators faced distrust and scepticism at global financial conclaves.  “Under the previous Obama administration, the CFTC was seen as browbeating overseas regulators to adopt a US-centric, one-size-fits-all approach to post-financial crisis reforms. In contrast, the Trump-era CFTC and SEC respected national sovereignty, while actively collaborating with overseas financial regulatory counterparts.

“Within a few years, the Trump financial team were acknowledged to be some of most responsive, capable and reliable US regulators in recent memory. Against all predictions, the 2017-2021 Trump era financial regulators were the ‘adults in the room’ both at home and abroad. If past is indeed prologue, against all predictions, future Trump financial regulators may be once again,” Giancarlo adds.

By contrast, Angel thinks that in the long-run having “a stable leader” such as Biden will be better for long-term capital market health and stability than the mercurial Trump. “Trump’s delusional and inflammatory statements give me serious doubts as to his ability to create the economically stable and peaceful climate necessary for economic growth,” Angel says.

“The real question is whether we will have a peaceful transition to the new administration, whatever that is. I think that markets will have a ‘relief rally’ when there is a clear resolution that is accepted by the bulk of the American people,” Angel adds.