How the 2024 election cycle may affect your investments
Get out the popcorn, the election mania has begun. While our U.S. Constitution affords each citizen the freedom to vote in a Federal Republic in the best country in the world, one thing is certain: This 2024 election outcome and higher inflation may have a profound impact on your overall net worth.
Debate Fallout
Given the outcome of the recent Presidential debate, the U.S. treasury yields started surging indicating that the re-election chances for Biden took a severe hit, and that a GOP sweep is possible. History shows that budget deficits tend to be larger under one-party control. The prospect of elevated deficits may have already played a role in driving up U.S. treasury yields. This means an increase in the supply of bonds that the market must absorb will apply upward pressure on inflation. As I wrote in my last newsletter, A Hard Asset is Good to Find, investing in hard assets is a good hedge against inflation.
Trump Trade Part 2
After Republicans swept control of Congress and the White House in the 2016 election, longer term yields rose faster than shorter term yields sparking a rally in the stock market. This also happened in January 2021, when Biden and the Democrat controlled Congress passed the COVID-19 relief package providing a rally in the real estate and stock markets. Be sure to consult with your financial adviser, however this may be worth taking advantage of should it come to fruition.
Regional Banks Stressed
As the $2.2 trillion in maturing U.S. commercial loan debt starts to hit the market through 2027, the Federal Reserve has increased scrutiny on regional banks given their exposure to loans and an overall decrease in loan business. “We expect higher for longer rates will continue to pressure credit quality for the next several quarters pushing more banks to build loan loss reserves through 2024,” analysts at Morgan Stanley. This capitulation may force more banks to take back properties and sell at a large discount to remove them from their balance sheets, whereby providing an amazing buying opportunity in 2025. Our company Recentric is poised to take advantage of this possible outcome.
Depending on your investment objectives, the above three scenarios can provide you with an advantage to improve your overall net worth and financial success. As an informed investor, it is important to understand how the political landscape can affect the private markets, and more importantly, your personal portfolio of investments. While commercial real estate is more sensitive to interest rates and employment, the government acts like a silent partner who can significantly impact your returns. Stay informed on what your government partner is going to do to affect your next investment decision.