What impact a republican win on US and EU stocks?

14 May 2024

A republican win in the US election could spell trouble for European stock markets, new research from Quilter has revealed.

According to the findings of the inaugural ‘Quite Interesting Survey’ from Quilter Investors, fund managers, including BlackRock, Fidelity and PIMCO, said the best election outcome for markets was a Biden presidency with Republican control of the Senate. However, just 15% of respondents saw a negative impact for US equities should the Republicans win control of Congress. In stark contrast, 61% said the same result would have a negative impact on European markets.

In addition, geopolitical risks were identified as a source of potential future market volatility, with the relationship between the US and China cited as the most profound threat.

The quarterly survey also found that investor expectations for interest rates and inflation remain historically wide, with the expected level of inflation in the UK by the end of the year ranging from 1.8% to more than 3.2%. However, 58% expect UK inflation to be below 2.2% in 2025, although 47% of respondents said they find the 2% inflation target “unreasonable” or “totally unreasonable.”

Quilter said there continues to be debate over the interest rate required to lower inflation, with expectations for UK base rates by December 2025 ranging from 2.5% up to 4.5%, with 42% of investors anticipating a rate closer to the higher end of the range.

Lindsay James, investment strategist at Quilter Investors, said: “At a time when global growth is decelerating, we are seeing a number of threats that risk the global order that we have become familiar with. However, despite the conflicts that have erupted of late, it remains the relationship between the two economic behemoths, US and China, that concerns investment professionals.

“Clearly these geopolitical risks are weighing on fund groups too with many expressing pessimistic views on where inflation and interest rates are heading. With expectations tempered in recent weeks, we are starting to see the possibility of divergent monetary policies from the major central banks. With markets often responding strongest following the first cut, it will be interesting to see how firms are allocating as a result.”

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