NEW YORK, March 8 (Reuters) - Investors fixated on

earnings and monetary policy are starting to factor in another

variable that could sway markets this year: the 2024 U.S.

presidential election.

In his State of the Union address on Thursday, U.S.

President Joe Biden proposed raising corporate taxes, whereas

his opponent, Republican candidate Donald Trump, signed a 2017

law that slashed taxes on companies and the wealthy. Biden also

boasted of U.S. economic progress under his tenure.

It is difficult to gauge how asset prices could be swayed by

these proposals and whatever else the presidential candidates

may put on the table in coming months. The winner is likely to

face a narrowly divided Congress that would make it difficult to

push through legislative changes.

That has not stopped some strategists from assessing how the

political outlook could coalesce with other factors that have

been driving markets. These include excitement over the business

potential of artificial intelligence and shifting expectations

of how soon the Federal Reserve might ease monetary policy. The

S&P 500 index is up about 7.4% year-to-date and stands

near a record high.

"You get a sense (investors) ... have a lot on their plates

right now, and politics is starting to come into that," said

Paul Christopher, head of global market strategy at Wells Fargo

Investment Institute. "Even though everyone knows the

candidates, it's going to be a pretty close race so it's very

difficult to predict the outcome."

Opinion polls show Biden, 81, and Trump, 77, closely

matched. While the U.S. economy is performing better than most

high-income countries, Americans overall give Trump better marks

in polls for economic issues.

Biden on Thursday proposed to increase to 21% a 15%

corporate minimum tax on companies reporting over $1 billion in

profit that he won as part of 2022 clean energy legislation.

He also promised to renew his "billionaire tax" proposal,

which would impose a 25% minimum tax on income for Americans

with assets of more than $100 million.

However, "it's going to be difficult for any tax policy

proposal to pass by either side because it's going to come down

to party lines," said Larry Tentarelli, chief technical

strategist for Blue Chip Daily Trend Report.

Regardless of the election outcome, fiscal policy will

likely be among the first items that the next administration

tackles, Wells Fargo analysts wrote.

A Republican sweep would likely mean that the 2017 tax cuts

would be extended at the cost of higher inflation, while a

Democratic sweep would lead to higher taxes on higher-income

households and corporations, the firm noted.

ELECTION YEAR TRENDS

The S&P 500 has notched an average gain of 15.5% in years

that a president has sought re-election, CFRA data going back to

the end of World War II showed. That compares to an overall

average annual return of 12.8% in that period.

At the same time, election years come with their share of

volatility. Analysts at BofA Global Research noted earlier this

month that, in previous election years, the Cboe Volatility

Index has risen by an average of 25% from the second

quarter to November.

Volatility tends to fall after election day with uncertainty

removed, the firm said. The bank recently increased its target

on the S&P 500 to 5,400, from 5000.

October futures on the Cboe Volatility Index -

which encompass options contracts that extend until the middle

of the following month - were recently trading some 2.6 points

higher than the September futures, suggesting investor wariness

regarding election-related market swings.

Historical trends may favor Biden as well. Since the

emergence of Super Tuesday in 1976, year-to-date gains in the

S&P 500 ahead of the primary have coincided with the president's

political party winning the election 80% of the time, LPL

Financial data showed.

The firm noted, however, that the S&P 500 has lately been

rising along with Trump's standing in national polls.

"This economy is doing well - and we will see whether Biden

gets credit for it," said Jeff Buchbinder, chief equity

strategist for LPL Financial.

EYES ON CPI

The market also had to digest plenty of near-term economic

data to gauge the Fed's monetary policy trajectory.

U.S. job growth accelerated in February, Labor Department

data showed Friday, but a rise in the unemployment rate and

moderation in wage gains kept on the table an anticipated rate

cut in June.

Investors are also awaiting U.S. consumer price data on

March 12 for further clarity on whether inflation has eased

enough for policymakers to lower borrowing costs in coming

months.

"Continued normalization in wages coupled with a weak CPI

print next week could increase the FOMC's confidence that

inflation is on track to returning to target, potentially moving

forward the prospects of rate cuts," wrote Jeff Schulze, head of

economic and market strategy at ClearBridge Investments.