09 Sep 2024
The 2024 US election landscape has been marked by dramatic twists, including the attempted assassination of Donald Trump and Joe Biden’s withdrawal from the presidential race. With Biden’s full backing, Kamala Harris was swiftly positioned as the Democratic candidate for the November election, setting the stage for an intense and highly competitive race.
National polls for the US presidential race have shown Harris as having the edge with a recent CNN/SSRS poll showing Vice President Harris either leading or tied with Trump in most of the key battleground states, but the state-level data indicates that the contest remains extremely close so it’s still anyone’s game.
The ultimate impact will of course come from the balance of power in the Senate and Congress, as this determines which policies will be implemented. Republicans currently hold a narrow majority in the House of Representatives of only 4 seats but with 17 Republican seats up for grabs the outcome could shift control in either direction. A split Congress with a Republican Senate and Democratic House looks like a likely scenario.
What’s the current state of the US economy? The economy is slowing down, inflation is approaching the 2% target and Fed Chair Jerome Powell has indicated that interest rate cuts are on the horizon. The housing market is experiencing a cool-off and the labour market is showing signs of weakening as unemployment figures begin to rise.
What if Trump gets elected? Trump’s policies are likely to continue to emphasise protectionism, particularly against China. He wants to bring more production on shore and plans to impose 60% tariffs on Chinese imports and 10% on goods from other countries, including US allies, which would raise costs for domestic consumers. Trump supports further tax cuts, proposing to lower corporate tax rates from 21% to 20%, despite them having been slashed from 35% back in 2017. With US debt standing at around 7% of GDP, this approach won't balance the budget, but he aims to offset the shortfall with revenue from tariff implementation.
Kamala Harris advocates a more measured and strategic approach to protectionism. She plans to raise taxes on high-net-worth corporations and introduce a tax on unrealised gains, a move that would likely be unpopular with major tech companies. Regardless of the election outcome, neither candidate's policies are expected to significantly address the national debt, and Trump’s proposed tariffs could negatively impact GDP.
What’s going on in the market, and what ripple effects can we expect? Before Harris joined the race, Trump was the clear frontrunner and bitcoin, gold, and tech stocks had surged. With upcoming rate cuts and Trump’s policies, domestic small-cap growth companies could see a boost, as their earnings prospects improve. The defence sector is likely to benefit regardless of the election outcome, as both candidates plan to increase spending in this area.
What about energy stocks? The outlook for traditional industries like oil and gas appears brighter under a Trump administration, as he favours reducing regulations. In contrast, Harris supports green energy and would continue to impose restrictions on drilling, which could negatively impact energy stocks, especially with a Democrat-controlled Congress.
How might other market sectors be affected? Tech companies could be impacted by US-China trade regulations. The consumer and retail sectors may see mixed results - Trump’s elevated tariff risks could impact them, while Harris’ proposed corporate tax hikes would also create headwinds. The healthcare sector, currently lagging the broader market, may benefit if Harris wins as she aims to renegotiate contracts with major pharmaceutical companies to lower drug costs. Some media stocks might be negatively impacted by a Trump victory.
If Trump is the victor, we can expect heightened volatility and unpredictability in the market, but this would also apply to some degree, if Harris were to win. Regardless of the outcome, the dollar is likely to weaken, opening up investment opportunities and equities could perform well, with certain sectors like emerging markets, small-cap stocks, and financials becoming more affordable.
Real yields have hit an unusually high point and government bonds, particularly US Treasuries, tend to perform well in times of uncertainty, presenting potential opportunities in this space. Base metals are also expected to show positive performance. Consumer spending is likely to be subdued, so caution may be needed when considering consumer discretionary stocks. In fixed income, the short end of the yield curve stands to benefit most from impending rate cuts and a deflationary environment with moderate growth. Credit spreads for both investment-grade and high-yield corporates are tight, offering an attractive risk-reward balance. Rate cuts should also have a favourable impact on interest rate-sensitive sectors such as real estate.
Whatever the election outcome, it's wise to remain invested in a well-diversified portfolio, especially given the macroeconomic uncertainties and the slight risk of a mild recession in the US. Investors should consider the medium to long-term opportunities that are likely to present themselves in the market and stay invested, maintain diversification, and avoid making impulsive decisions in response to market fluctuations.
Olga Baron, Investment Research Support Manager
Katie Sykes, Client Engagement & Marketing Manager
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