Economic Outlook

Impact of 2016 U.S.
elections on investing

Oct 24, 2016

The 2016 U.S. election is unusually consequential. The underlying dynamics are driven by widening income inequality, and a growing perception that the benefits of trade and globalization have accrued to few. We examine the political landscape and policy proposals from each candidate, and what it means for investing.

Key highlights

  • Washington decision making is likely to become more fractious regardless of the election result. Divisions between and within the Republican and Democratic Parties have been growing, and an outcome whereby neither party would have a significant majority in the House of Representatives is a possibility. This could make it harder to reach consensus on legislation, potentially heralding a return to dramatic showdowns over budget issues.
  • Yet corporate tax reform and increased spending on infrastructure appear to have some bipartisan support — and would be a ripe area for negotiation in a divided Congress. Infrastructure spending should boost growth more than usual amid rock-bottom rates, in our view. We offer some of our own policy thoughts, including steps to address a looming retirement crisis and to entice private capital to finance infrastructure.
  • A growing backlash against free trade and immigration threatens to make economies more insular—at a time when economic growth and productivity in many countries are barely above stall speed. Emerging markets have the most to lose, especially under a victory by Republican nominee Donald Trump. Mexico is a clear potential loser given its heavy reliance on exports to the U.S.
  • The U.S. election campaign suggests rising populist sentiment around the globe is likely here to stay. We also see potential changes to income taxes, with ripple effects on U.S. municipal bonds. We focus on two sectors that could be most affected by the election: financials and healthcare. Mergers and acquisitions are set to face increased scrutiny if Democratic nominee Hillary Clinton prevails, as her party appears to view anti-trust enforcement as a tool to boost competition and address inequality.

Unequal gains
Share of population in groups with flat or falling income, 2004-2014

Chart: Unequal gains

A polarizing U.S. election echoes a surge in populism around the world, also reflected in the UK’s recent Brexit vote. Rising inequality and a sense that economic growth has only benefited few are leading to a backlash against free trade and immigration. Pretax incomes for 81% of the U.S. population were flat or falling from 2004 to 2014, mirroring a trend in other developed nations, as the chart above shows.

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Philipp Hildebrand
BlackRock Vice Chairman
Barbara Novick
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Isabelle Mateos y Lago
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Lisa Walker, CFA
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Erin Xie
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