By Thomas Dee, CFA, Capstone’s Head of Research and Strategy

Two policy stories will dominate 2024.  The first, of course, is that 2024 is an election year.  Biden will end 2023 with an average approval rating of 39%, the lowest of any of the last seven first-term presidents (then-President Trump sat at 45% at this time in 2019).  Biden’s average disapproval rate is 55%. 

Trump looks like he has a lock in the Republican Primary, with an average (and rising) polling average of 61%, compared to around 11% for Florida Governor Ron DeSantis and former South Carolina Governor Nikki Haley. The Iowa Republican caucus is January 15^th, followed by the New Hampshire primary on January 23^rd and the South Carolina primary on February 24^th.  Barring an unexpectedly tight Republican race, we will likely know in the next couple of months whether 2024 will see the Biden-Trump rematch that most expect.

Barring an unexpectedly tight Republican race, we will likely know in the next couple of months whether 2024 will see the Biden-Trump rematch that most expect.

Control of Congress in 2024 is also competitive, with consensus forecasts for the Senate tilting Red and the House tilting Blue, raising the specter of continued split Congressional control, regardless of the presidential election’s outcome.

The second policy story – and the more impactful one, at least for the 2024 calendar year – is that we’re entering the fourth and final year of President Biden’s first term, so his regulatory agencies are racing to implement impactful regulatory changes as quickly as possible.  We believe this presents a series of underappreciated risks and opportunities for investors and operators across sectors.

In the energy sector, we expect continued tailwinds for renewable energy, electric vehicles (EVs), and clean fuels, as there is greater clarity around the various incentives in the Inflation Reduction Act (IRA), passed into law in 2022.  The 2024 election may introduce headline risks to these industries amidst Republican calls to repeal parts of the law, but we believe wholesale termination of the IRA incentives is unlikely, regardless of the election outcome.

In the financial services sector, we expect the Consumer Financial Protection Bureau (CFPB) to have an especially active 2024, emboldened by a US Supreme Court decision expected in the first half of the year that, we predict, will rule the agency’s funding structure constitutional.  Key consumer finance developments will include a final rule lowering credit card late fees, proposed restrictions on bank overdraft fees, and, from the CFPB’s sister agency, the Federal Trade Commission (FTC), a final rule governing auto dealer fees.  For US banks, the recently proposed Basel rulemaking, which would dramatically increase capital requirements for large and regional banks, will come to a head – and there are reasons to believe the rule will be watered down or delayed.

We’re entering the fourth and final year of President Biden’s first term, so his regulatory agencies are racing to implement impactful regulatory changes as quickly as possible.

Private equity (PE) firms are increasingly under the regulatory spotlight, with a particular focus on healthcare providers, roll-up strategies, and partnerships with insurers.  In 2024, we expect the National Association of Insurance Commissioners (NAIC) will press ahead with reforms that may ultimately weigh on what have become increasingly common PE-insurer partnerships. 

Within US healthcare, we see headwinds in 2024 for Medicare Advantage (MA) insurers as various reforms designed to crack down on overpayment begin to take effect.  Here, we believe we differ from the consensus, as many investors seem to falsely believe the impact of these 2023 rulemakings is already being felt.  As IRA implementation uncertainties persist, we also expect a rockier landscape for pharmaceutical manufacturers in 2024.  For providers, there will be continued pressure from sustained labor inflation coming out of the pandemic, but we expect inflection points beginning in 2024 that could set the stage for congressional or regulatory relief. 

The policy environment for K-12 education will be dominated in 2024 by the continued “stimulus run-off” story, as there is a pullback in pandemic-era K-12 investment in areas like tutoring, social and emotional health, and supplemental instruction.  And for higher education, the US Department of Education’s (ED) final debt forgiveness rulemaking, though watered down, will face legal challenges.

Within technology, media, and telecommunications, we expect the Securities and Exchange Commission (SEC) to approve a spot Bitcoin exchange-traded fund (ETF) by July 2024, perhaps feeding a further resurgence in the asset class (Bitcoin is already up over 100% year-to-date in 2023 to $42,000, as of this writing). We also expect the de facto US-EU trade war over artificial intelligence (AI) will heat up in 2024, with wide-ranging implications for proprietary and open-source AI, as well as consumer hardware. 

In geopolitics, we expect direct US-China tensions to moderate in 2024, with both countries seeking to avoid conflict – but with the US doubling down on investments to counter China’s influence. Despite some recent thawing of relations, US-China tensions pose underappreciated risks in 2024 for microelectronics manufacturers and platforms selling Chinese-made consumer goods. 

In late December, our sector teams published 14 year-end previews analyzing how policy changes will shape investments and sectors in 2024.  These include energy, financial services, healthcare, technology, crypto, telecommunications, education, and geopolitics.  All of them can be found here.  We will continue to monitor policy developments across these and other sectors.

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