Five Things That Could Impact Your Portfolio More Than the U.S. Election

As the public is confronted with wall-to-wall coverage of the U.S. election, it’s natural for investors to wonder how the outcome could affect global economics and markets. And while presidents and their policies can have some impact on markets, they don’t always affect investors as much as you might expect. In fact, there are other issues and events that could influence portfolios more than the election.

“The election is something investors pay attention to, but the ultimate impact on the economy tends to be fairly small,” says Eric Savoie, an investment strategist with RBC Global Asset Management. “There are other things that are important over the intermediate to longer term.”

Here are some things investors should have on their radar both now and after the election.

Continued rate cuts

Interest rates can directly impact economic growth and market movements. Starting in 2022, central banks began increasing rates in an attempt to slow down their economies and bring down inflation. Those moves appear to have made an impact – Canada’s inflation rate fell to 2 per cent in August, while U.S. inflation dropped to 2.4 per cent – and this spurred the Bank of Canada and the U.S. Federal Reserve to start reducing rates. “This is the beginning of an easing cycle,” notes Savoie. “I believe Central banks will likely make further cuts in 2025.”

Historically, rate decreases have often led to increased economic growth as consumers and businesses can borrow money at lower rates, which could result in more spending. Markets tend to perform well when bond yields fall and equities become more attractive to investors. “If we get the easing that we anticipate, I expect it will make a meaningful difference and provide support for the economy going forward,” he explains.

China’s slowdown and high government debt

While the U.S. and Canadian economies may see stronger growth as interest rates decline, a slowing Chinese economy could temper overall global growth, says Savoie. In China, housing has become a significant issue, with new home prices falling by 4.9 per cent year-over-year¹ in August – the biggest drop since 2015. The country is also heavily indebted, with its debt-to-GDP ratio reaching a record high of 295.6 per cent in 2024.² “China is the second-biggest economy in the world and the biggest contributor to global growth,” says Savoie. “If you see a meaningful weakening in that economy, it can have ripple effects on all the other economies around the world.” These challenges motivated Chinese policy makers to recently announce significant stimulus measures in an effort to reinvigorate economic activity and restore the confidence of investors and consumers. The stock market has responded favourably as a result, although it remains to be seen whether the stimulus measures will be sufficient to mitigate China’s slowdown.

Many other governments are also carrying large debt loads, partly because of all the money they spent during the pandemic – this includes the U.S. and Canada, both of which have debt-to-GDP ratios of above 100 per cent. When a country has significant debt³, a larger portion of its spending might be allocated to servicing that debt, which means less is available for building roads, providing social programs and investing in innovation. “It’s not an immediate threat, but it is something that will probably have long-term implications,” says Savoie. “Whether or not the next U.S. administration decides to tackle the debt is another question, but typically, the governments try to kick the can down the road.”

Geopolitical concerns

While a new U.S. president could bring change and potentially affect the markets, events like war and political unrest in other parts of the world could also make a difference. “The real impact [of geopolitical issues] is on investor confidence, risk appetite and uncertainty”, says Savoie. Currently, the wars in the Middle East and Ukraine aren’t having a material effect on stocks, but if things worsen and investors get jittery, that could change.

Of course, the opposite is true, too – if these conflicts end, investor confidence could increase, which could possibly push markets higher. But there are always risks on the horizon that investors need to consider. For instance, China and Taiwan are “another risk worth paying attention to,” notes Savoie. While it’s a slow-moving conflict, if tensions increase, then that could have a significant effect on the global economy. “Taiwan is a central producer of semiconductors, which is a big deal with artificial intelligence,” he explains. “If there were a supply chain disruption, there could be consequences for the tech industry.”

Improved consumer spending

Consumer spending can be a determinant of economic growth and stock market returns. Typically, the more money people spend, the more money companies make, and the more they can invest in jobs and growth. As borrowing has become more expensive, spending on both sides of the border has softened.⁴ The question now is what happens as rates come down. Savoie points out that consumer spending is closely tied to employment rates. “If the unemployment rate continues to rise and consumer confidence gets hit, people will reduce their spending,” he says. However, if lower rates encourage companies to invest in their businesses again, then you could see more jobs, improved consumer confidence and rising consumer spending.

The future of AI

AI is another trend that could impact investors. What that impact will be is still unclear, but with generative AI making it a lot easier to do simple tasks, like summarizing a meeting or writing emails, productivity could ramp up in the coming years. AI is expected to become a US$1.3-trillion market by 2032⁵, and it could have a significant effect on the economy and society more broadly. However, significant investments, like building data centres and revamping the energy grid, will need to be made in order to handle this power-intensive technology, says Savoie. That should help boost economic growth and buoy tech, utility and other sectors.

Of course, it’s not yet known what the impact of AI will be on jobs, but Savoie says that new technologies have historically been positive for the economy. “There is the potential for disruption in the labour market, but it will likely do more good,” he says. “Many revolutionary technologies have disrupted the labour market, and typically the economy ends up being better off.”

Ultimately, while it may be important to investors to watch the election, many other factors will also contribute to where your portfolio will head in the coming year. Consider multiple sources and circumstances – not just a singular event – when making investing moves.


¹ _{Source: Reuters, "China's home-price slump deepens to new 9-year low despite stimulus", August 2024}

² _{Source: Caixin Global, "China's Macro Leverage Ratio Edges Up to Fresh Record", July 2024}

3 _{Source: Fraser Institute, "Federal government debt interest costs nearly double in just two years", January 2024}

4 _{Source: RBC Economics, "RBC Consumer Spending Tracker", October 2024 & Bureau of Economics Analysis, "Consumer Spending", September 2024}

5 _{Source: Bloomberg Professional Services, "Generative AI 2024 Report", 2024}