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July Edition: Navigating Political Shifts in the Market

By
Paul Kenworthy

Politics and elections have dominated the thoughts of the markets and investors alike recently. In this article, I am looking at the ways in which these upcoming elections will affect the markets over the coming months.

UK

The General Election was held yesterday, and over the last few months, the markets have been shifting to reflect the expected change in Government (this post was written before the results have been announced).

Prior to the announcement of the election, UK stocks had been out of favour, but investors have been gradually moving back towards these stocks in the expectation that there will be more political stability following the election. This will almost likely continue in the next few weeks as more certainty is known about the Government’s policies.

In their recent market update, IBoss have stated the following:

‘We believe UK equities are well placed to outperform from here regardless of the election result. The market is considerably cheaper than normal, both in absolute terms and relative to the rest of the world and looks good value. Importantly, the UK economy is also now growing again and interest rates should start to be cut later this summer.’

Source:

Market Update | Election Special

 

The expected change in Government will also bring about changes in Tax. Labour have announced that they will not raise the following taxes:

  • National Insurance Contributions
  • VAT
  • Income Tax (Basic and Higher Rates)

However, there has been no indication regarding Capital Gains Tax, so it is possible that this is one area where there may be changes in the future – With the annual exemption having already reduced significantly in the last couple of years.

Labour has also stated that they will change the way that ‘Non Doms’ are taxed, although they haven’t given much information about this in their manifesto.

The Lifetime Allowance was abolished on 6th April 2024, and replaced with the Lump Sum Allowance (LSA) and Lump Sum Death Benefit Allowance (LSDBA). Labour had previously stated that they intended to re-introduce the Lifetime Allowance if elected, but this was quietly dropped in the run up to the election.

This was no doubt a relief for many within the industry, as we have all had to adapt to the new regime and it would no doubt cause many issues going back to the old Lifetime Allowance system.

US

The US General Election is due to be held on 5th November 2024 and we are in the midst of the televised debates between Joe Biden and Donald Trump.

Much has been of Biden’s performance in this debate and whether he should remain in contention for the election. The polls now indicate that Trump is in the lead and will likely be the next US President.

However, this uncertainty doesn’t seem to be affecting the markets, as detailed in the recent Close Brothers market update:

‘In terms of US investment implications, these are likely to loom into focus for markets in a more meaningful way as the election approaches. Fortunately for markets, either a Democrat or Republican victory is likely to be tolerable for markets. Trump would be expected to increase spending, which could support growth but would also increase borrowing, while a Democratic win could see some increases to taxation. Control of the Senate and Congress is also worth consideration – single-party control of both the presidency and congress will allow greater flexibility with law-making.’

Source:

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France

President Emmanual Macron recently called a snap election in France following the poor showings in the recent European parliamentary elections.

The first stage of these elections took place on 30th of June and then the ‘run off’ is taking place on the 7th of July.

Marine Le Pen’s National Rally Party is leading following the initial stage. However, they may not receive enough votes to form a majority Government, with the other parties scrambling to unite in order to try and prevent this.

As stated in the IBoss Market Update (same source as above), any results from this election will likely mean uncertainty within the markets:

‘A government led by either would herald an era of uncertainty, a higher budget deficit and more anti-European stance and French markets have duly sold off on this prospect. French equities are down 5% or so since the election was called and bond yields have also risen.’

We will be keeping a close eye on all developments in the coming weeks and months, as the results of these elections will greatly affect the markets moving forward.

Looking to navigate these changes with confidence? Discover how our CIP and CRP services at We Complement can help you make informed investment decisions and help you provide your clients with the best advice and solutions in these dynamic times.

Reach out to us today to learn more!

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