2024 U.S. Election: 5 Things to Know

President Trump returned to office powered by the public’s desire for meaningful change. This election marks the ninth time in the last ten U.S. elections that Americans have opted for a new path forward, ousting incumbents in successive elections since President Obama was reelected in 2012. Voter frustration over economic challenges, particularly the rising cost of essentials, helped propel President Trump to victory. Consider that unlike unemployment – which affects one in five voters – inflation impacts 100% of the population. Henry McVey, the Head of Global Macro & Asset Allocation and CIO of KKR’s Balance Sheet, and Ken Mehlman, Global Head of Public Affairs recently published a detailed note - Focus on the Forest, Not the Trees - detailing what we at KKR think you need to know about a second Trump administration. Below we offer five key takeaways for financial advisors, private bankers, and the individual investors they serve.

EXHIBIT 1: For Many, the American Viewpoint on President Trump Changed

Who Do I View as the 'Change' Candidate?

2. President Trump wants to increase American competitiveness via faster growth, lower taxes, and less regulation. 

• President Trump’s domestic policy agenda, characterized by an elevated fiscal impulse, higher potential for deregulation and increased merger activity across key sectors will be an important trend over the next four years. However, all else equal, these policies, though supportive of growth and financial markets, may also stoke inflation, which has implications for asset allocation decisions. 
• The centerpiece of Congressional Republican’s 2025 legislative agenda, which is testament to the elevated fiscal impulse defining the ‘New Regime,’ involves a full extension of the Tax Cuts and Jobs Act of 2017. While the core components of the tax bill will be extending the expiring provisions of the 2017 law, new initiatives such as ‘no tax on tips’ and perennially challenging the SALT limitation and the passthrough deduction, will also be in play. Republicans want to move quickly to maximize legislative wins in the first 100 days, so a final vote for the tax resolution could occur by April 2025.
• The other cornerstone of President Trump’s plan is his deregulatory agenda. Aimed to promote economic growth and ease regulatory pressures on business, this agenda also includes energy permitting reform that enables more connectivity between renewables and the grid, faster grid buildout, and more streamlined processes for building oil and gas infrastructure.
• Simultaneously, we expect a pullback in federal support for clean energy development, which is likely to induce further volatility in prices of green-adjacent commodities like lithium. That said, the energy transition is a permanent mega-trend regardless of the election outcome. Consider that current state regulations, which tend to be sticky throughout political regime changes, require a minimum percentage of electricity sold by utilities to come from renewable sources.
• Outside of the Oil and Gas sector, we think Financials, Real Estate, and Defense should benefit from President Trump’s goal to fuel deregulation and bolster national security. On the cautionary side, a higher nominal GDP environment leads to higher financing costs for both buyers of autos and houses. We are also watching Healthcare closely, but do not anticipate a major overhaul of any retiree benefits or drug prescription programs.

3. ‘Great Power Competition’ is still the overarching framework for global geopolitics, we believe. The race between China and the U.S. as well as greater competition between nations is resulting in increased focus on securitization across a wide array of strategic industries. Trump 2.0 is likely to see a continuing push by partners to reduce their historic dependence on the U.S., to develop their own independent capabilities, coupled with a recognition that full independence or autonomy from Washington is impossible. We believe that increased geopolitical uncertainty warrants more holistic and diligent diversification across geographies, asset classes, and sectors.

• China: The U.S.-China rivalry will remain central to this thesis as the world continues to shift away from benign globalization. President Trump is likely to use many levers to further America’s competitiveness. On tariffs, we take President Trump’s threats seriously, but not literally. The total tariffs on China may be considerably less than the 60% stated, with most of the blunt force hitting items that are less consumer facing and that have more substitutes. Other global tariffs are likely to be selective, rather than a blanket 10% across the world.
• Mexico: President Trump could threaten (or temporarily place) broad tariffs on Mexico as leverage to get them to take a more aggressive approach to border enforcement, which can have negative implications on the U.S. labor supply, especially in the services-oriented sectors. He could also place tariffs on Chinese and other foreign autos exported via Mexico. More broadly, Trump is likely to target Chinese exports that are being effectively transshipped through third countries like Mexico, especially when this activity is driving up a U.S. trade deficit with these countries. Negotiating the United States-Mexico-Canada Agreement (USMCA) is also on the table.
• Risks associated with tariffs include higher inflation, price volatility and (manageable) drags on GDP growth, especially as other countries retaliate. Globally, President Trump’s tariff threats pose downside FX risks for America’s key trading partners like China, Europe, and Mexico in particular.
• Middle East, Russia-Ukraine, and North Korea: We expect the ‘art of the deal’ to permeate foreign policy—with a push to resolve or at least attenuate the wars in Ukraine and the Middle East, restart diplomacy with North Korea, expand the Abraham Accords between Israel and its Arab neighbors, and rebalance trade relations with major nations on terms perceived as more favorable by President Trump.
• U.S. themes around industrial policy, control over critical tech, the creative use of export controls, sanctions, and tariffs, and the expansion of defense and industrial technology baselines are likely to accelerate.
• Finally, an America-First presidential policy likely means a stronger dollar, especially relative to countries that have larger trading deficits with the U.S. At a minimum, we expect a material elevation in currency volatility as trade policies are re-negotiated, leading to more uneven inflationary trends around the world.

4. Against this macroeconomic backdrop reaffirmed by the Red Sweep, we continue to argue for more diversification across asset classes as stock/bond correlations have turned decidedly positive and volatility is likely to remain elevated. We think the benefits of non-correlated assets (including less dependence on global sovereign bonds) in investor portfolios are important as return expectations have compressed or gotten ‘flatter’ and volatility has increased (see Mid-Year Outlook for 2024: Opportunity Knocks). Many investors are leaning into Alternatives to boost returns and obtain diversification, downside protection, and inflation hedging benefits. We also see a mega trend emerging as more companies shift from capital heavy to capital light. A growing number of public companies are essentially taking themselves private through better capital allocation, including aggressive buyback programs. They are also selling off capital heavy parts of their businesses to raise fresh capital to complete these repurchases. This creates an even more attractive opportunity set for private markets.

EXHIBIT 3: While 2024 Should Be a Lower Inflation Environment, We Believe a Regime Change Has Occurred  

Low and High Growth and Inflation Regimes

EXHIBIT 4: We Continue to Think We Have Entered Into a Regime Change for Asset Allocation, Especially as it Relates to Bonds

5. As long-term investors we are focused on long-tailed themes, regardless of the election cycle, including Collateral-Based Cash Flows, Productivity/Worker Retraining, the Security of Everything/Resiliency, Defense, and Intra-Asia Trade, which we believe will continue to gain momentum in the New Regime. Over the past 5 years, we have increased our focus on collateral-based cash flows backed by hard assets, such as in Infrastructure, Real Estate, and Asset-Based Finance. The assets backing these income streams generally keep pace with inflation, either contractually or via pricing power, which is one of the core drivers of the outperformance of many Real Assets in the new regime. That said, Private Equity continues to be the asset class with the highest return potential – especially on a go forward basis amidst pressures on public equities driven by elevated valuations, higher inflation volatility, and higher rates. We have seen a meaningful acceleration in deployment activity and monetization amid activity overall in capital markets.

While the temptation to react to daily market news may be strong, we think it is important to remain focused on material events that impact long-term strategies, not the highly interesting, but unsubstantial, daily rhetoric that does not actually change the narrative of the next four years. No doubt, there will be material events that occur along the way that warrant investor attention. This is why we continue to rely heavily on our top-down frameworks and are advocates of history-tested guideposts including linear pacing, diligent diversification across geographies, asset classes, and sectors, and the identification of long-term themes that thrive across election and geopolitical cycles.