Recently, risks such as inflation and interest rates have dominated the headlines — and investors’ attention. But the twists and turns of the current geopolitical landscape will also need to be navigated as we enter the second half of 2024. These “black swans” (or unknown risks) can often lead to uncharted waters for investors, making it hard to anticipate the potential impact on their investments.

Let’s assess what we know about the key geopolitical events on the horizon — and what they might mean for the economy and markets through year-end.

The 2024 US presidential election

November’s historic election is approaching fast. The rematch between presumptive Democratic nominee Joe Biden and presumptive Republican nominee Donald Trump has remained a background concern for markets. As summer turns to fall, campaign noise will amplify. 

Recent history suggests the race will be tight and possibly decided by a handful of swing states. Campaign rhetoric has the potential to spark short-term market volatility. Potential policy shifts under a new administration could also have market implications. Still, plenty can change before proposals become legislation.

Despite the impending political noise we’ll hear during the next six months, election season tends to favor investors. Even though today’s political environment makes it hard to pass sweeping legislation, it doesn’t seem to hinder investors. As seen below, stocks tend to go up regardless of the power-sharing agreement in Washington.

Stock market performance and the political party in power

Black swans take flight: geopolitical hot spots

Regardless of the result, the next US president will face challenges navigating the geopolitical landscape. Although they aren’t as high as they were during the peak of the pandemic, geopolitical risks persist (as seen in the following graphic), with several simmering hot spots.

The score on geopolitical risks

Ukraine war: The global economy continues to feel the ripple effect of this conflict on agricultural commodities. US funding for Ukraine, future relations with Russia, and a potential resolution will remain top of mind during US elections.

Israel-Hamas war: Although the humanitarian impact of this conflict is undeniable, the economic impact has been mostly neutral. But the situation is volatile and ever-changing, requiring close monitoring. US election dialogue around funding for Israel and the fate of its hostages in Gaza will undoubtedly take center stage during presidential debates.

US-China relations: Tension between the US and China remains. Trade policy, tariffs, and the future of technology access and availability for both countries will affect the relationship going forward. These same issues are also important drivers of the global economy, and investors should be focused on any resolution, progress, or setbacks on these important topics.

Domestic issues: Other domestic issues carrying global implications include the deficit, our debt level, and US dollar policy, which all go together with the level of interest rates and the ownership of US debt. Future immigration policy (and its effect on labor supply), economic growth, and climate change proposals from the presidential candidates should also be on every investor’s radar.

Finding opportunities amid the uncertainty

Changes to the geopolitical landscape will no doubt cause uncertainty. But, it’s important to remember that markets already have expectations about these events and have discounted them accordingly. Although staying vigilant to evolving expectations is already a part of what we do, finding opportunities amid the uncertainty is critical to navigating the geopolitical terrain ahead.

Looking for more insights? Access the full Midyear Outlook from Commonwealth here.

Commonwealth Financial Network^®, Member FINRA/SIPC, a Registered Investment Adviser, FINRA/SIPC.

Certain sections of this commentary contain forward-looking statements that are based on our reasonable expectations, estimates, projections, and assumptions. Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. All indices are unmanaged and are not available for direct investment by the public. Diversification does not assure a profit or protect against loss in declining markets. The S&P 500 is based on the average performance of the 500 industrial stocks monitored by Standard & Poor’s.