The Final Countdown - 40 days to go
The Final Countdown -
40 days to go
Investor attention is now shifting to the US election. At the time of writing, there are just 40 days to go. Whilst betting odds seem to have tipped in favour of a Kamala Harris victory, we believe it remains too close to call. The Electoral College System means a relative small number of undecided voters in a small number of swing states is going to be the likely driver of the election result, rather than the overall popular vote.
US presidential election: odds of winner
Policy comparison
The table below lays out some of the key policies of the presidential nominees to assess the potential for any material impacts on markets post the November election. We should add that there is a reasonable expectation that if Trump was to win the election, then it would be likely that Republicans would have much stronger influence on the legislative process. They are expected to have control of the Senate and the House of Representatives. This is unlikely to be the case for Democrats. This means that Republican policies that require the legislative process are likely to be passed if Trump wins. If Harris wins it is likely that she may have to work alongside a Republican legislature meaning that her policy ambitions may be diluted when it comes to implementation.
Source: Democrats Final Master Platform, Republican Party Platform
Trump pro corporate America but an inflation threat?
Trump’s policies are seen by commentators to be a net positive on corporate America. He is looking to extend the corporation tax cuts he put in place back in 2017 and also go a step further. This would benefit corporate earnings. Trump is also seen to be protecting US companies through an aggressive tariff regime especially in relation to China with 60% tariffs highlighted. He is also advocating broad 10-20% tariffs outside of China. Notably, the medium to longer term unknown here is the effect this can have on creating unwanted inflation domestically. Trump’s policies on reduced legal immigration and deportation on undocumented individuals could also have labour inflation consequences as well too. On renewables, Trump is less supportive of the green agenda and in defence, he has stated he would reduce support for Ukraine.
Harris supportive of the US consumer but..
Harris is looking to do the opposite of Trump with higher rates of corporation tax proposed. That said, she appears more supportive of the US consumer outside of high wealth brackets. She is also looking to raise the federal minimum wage whilst also advocating polices that look to reducing prices at grocers, continue help with medical care support and expand student debt relief. Whilst these policies can help increase the disposable income of many consumers, Harris is also looking to increase tax for more wealthy individuals. This is both at an income level for those earning over $400k and increasing Capital Gains Tax which normally impacts the wealthier individuals most. Interestingly, at an economic level the question is would high taxes for the more wealthy be offset by increases in disposable income when it comes to overall consumer spending. Harris has the opposite stance to Trump in Renewables and Foreign policy with support for green initiatives and she would continue support for Ukraine.
What is the potential impact on markets
As is often the case, we can scrutinise each party’s policies and take a view on how they might impact markets but sometimes what is also important is what is not mentioned. In this case neither party is talking about how they would reduce the fiscal deficit. This could have consequences for bond yields if investors seek to punish governments who run fiscally irresponsible budgets, as demonstrated post the Liz Truss ‘mini budget’.
Trump’s policies appear to run the risk of higher inflation. His range of policies such as around tariffs and labour do appear to have potential consequences for inflation that could offset any initial benefits. Harris is less pro corporate America and is generally looking to place a higher tax burden on large companies and wealthy individuals but has higher spending plans such as in defence and healthcare. Neither of these approaches would tackle the deficit issue no one is talking about.
A close call, we wait and see
The US election is now only weeks away. It remains too close to call and the implications of a win for either nominee are complex. Therefore, we are not presumptive in how we invest, with our asset allocation positioned for the long term. Time will tell what the election will bring but we keep a close eye on both the implications of known policy as well as looking out for the implications for what might not be discussed ahead of an election. Trump’s tax cuts were supportive for US equities in 2017, but over time equities tend to ignore political outcomes as corporate activity is more fundamental to long-term investing trends. Politics do matter in the short-term, but whilst long-term investors should be aware of political changes, they should not always react to them.
Phil Carroll
Head of Alternatives
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Important Information
All expressions of opinion reflect the judgment of Artorius at 27th September 2024 and are subject to change, without notice. Information has been obtained from sources considered reliable, but we do not guarantee that the foregoing report is accurate or complete; we do not accept any liability for any errors or omissions, nor for any actions taken based on its content. The value of an investment and the income from it could go down as well as up. The return at the end of the investment period is not guaranteed and you may get back less than you originally invested. Past performance is not a reliable indicator of future results. Nothing in this document is intended to be, or should be construed as, regulated advice. Artorius provides this document in good faith and for information purposes only. Reliance should not be placed on the information contained within this document when taking individual investments or strategic decisions.
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