The upcoming U.S. Presidential election on 5 November 2024 is being touted as one of the most important elections in the modern history of the United States, with Donald Trump and Kamala Harris both vying for the opportunity to become the 47th President of the United States of America.
Both candidates offer contrasting policy agendas, with Harris focusing on climate action, healthcare and social programs, while Trump is running on an “America First” agenda focusing on tax cuts, deregulation and supporting U.S. industries.
In this note, we examine the various scenarios that may eventuate from the US election 2024, the key policies being promoted by each candidate, and the potential impact of these policies on investment markets.
In recent days, betting markets for the US election 2024 have moved decisively in Donald Trump’s favour, implying a 63% probability of victory over Kamala Harris. National opinion polls on the other hand, show Harris marginally ahead with 47% compared to Trump’s 46%, illustrating that the outcome is just too close to call.
History has shown that the various methods used to predict elections, such as voting polls, quantitative models and betting markets are less than perfect in their abilities to forecast election outcomes so anything can still happen. Who can forget the 2016 election outcome when Hillary Clinton was the overwhelming favourite to win the White House?
While uncertainty surrounds the specific details of each candidate’s policies, it is estimated that both candidates’ initiatives will result in an expanded US budget deficit, with the Committee for a Responsible Federal Budget estimating that Harris’ platform will cost $3.5 trillion between 2026-2035, while Trump’s policies will cost $7.5 trillion.
The key aspects of Trump’s campaign revolve around the extension of fiscal stimulus in the form of personal tax cuts that began during his first term in 2017 with the potential for further personal and corporate tax cuts. These would be funded (albeit partially) via an increase in import tariffs and a decrease in Government spending.
Kamala Harris on the other hand, will aim to increase the corporate tax rate and restore higher income and capital gains taxes on high income individuals, directly impacting corporate earnings and consumer spending. Her policy initiatives focus heavily on green energy, expanded healthcare and social programs.
Although there is great uncertainty around the likely victor come election day, the most likely election outcomes are shown below:
Markets are currently assigning a 47% probability to the Republican Party prevailing in a so-called Red Sweep where Trump wins the White House and Congressional control. This result would provide Donald Trump great freedom to implement his policy agenda, an outcome that is expected to be inflationary, owing to significant trade tariffs and reduced tax receipts that will worsen Federal budget deficits. In anticipation of a red sweep eventuating, US Treasury yields have risen sharply over the last month as investors hedge their risks against a potential break out in inflation. Equities have also continued to perform well and may extend this run in the short-term in a red sweep scenario.
In the event that Trump wins the White House with a divided Congress, it is likely that his tax proposals will be blocked, resulting in a shift in focus to corporate deregulation and increased import tariffs. This outcome would arguably be negative for equities, as it would result in a trade war without the ability for fiscal stimulus.
The likelihood of a Blue Sweep where Harris wins the White House and Congressional control is currently seen as the least likely outcome with markets assigning a 10% probability to this scenario, but as we have seen in recent election history, surprises can certainly happen. The expiration of some 2017 personal tax concessions and an increase in corporate taxes would impact personal consumption and corporate profitability, thus being seen as a negative for equity markets.
A Kamala Harris victory with a divided Congress would mean that she is unlikely to have the congressional support required to push through many of her key fiscal policies. It therefore means that a status quo situation is likely to play out for the US economy as investors refocus on the macro-economic outlook as policy uncertainty declines.
Irrespective of presidential candidate, based on a long history of data since 1930s, a divided Congress has delivered the best market returns over the presidential term.
When considering the investment implications of the US election 2024, it’s important to recognise that elections are a short-term occurrence in the context of a long-term investment strategy. Market volatility is not uncommon during elections and should not be seen as a reason to make knee-jerk reactions and position for binary outcomes. To guard against these periods of volatility the most effective investment strategy is to maintain a diversified portfolio that can help buffer you against unforeseen market movements.
While equity markets may continue to run during the election campaign, Findex maintains its view that the US economy will continue to slow over the coming 12-months as interest rate stress increases and employment markets weaken as corporate earnings come under pressure. With equity valuations already expensive and geo-political issues escalating in the background, the Findex Investment & Asset Allocation Committee prefers to maintain an underweight allocation to equities at this point in time.
In times of political uncertainty and market volatility, a well-diversified and strategically managed investment portfolio remains crucial. As we navigate the unfolding events of the U.S. Presidential election, our team at Findex is committed to keeping you informed and prepared. If you require investment advice or would like to discuss how your investment strategy may be impacted, please reach out to your Findex advisor or get in touch with our wealth management experts.
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