The US elections, one of the year’s most pivotal events, is just around the corner. On 5th November 2024, the US will hold one of the most polarised presidential elections in its history. We’ll dive into the current race, break down each candidate’s policies, explore possible election scenarios, and look at their potential impact on the markets.
Who is Likely to Win?
Polling data and betting markets are two of the most popular ways to predict election outcomes, yet they’re currently painting very different pictures.
Polls, often conducted through surveys, show a narrow lead for Democratic candidate Kamala Harris, who holds 48.8% in national polls compared to Trump’s 47.6%. With such a slim margin, the race remains too close to call.
Meanwhile, betting markets, where gamblers wager on event outcomes, suggest Trump has a stronger chance. According to one of the most popular betting sites, Polymarket, his odds surged in October, with current figures giving him a 64% likelihood of winning, compared to Harris’s 36%.
Trump vs Harris: Policy Comparison
The candidates hold distinctly different positions on key issues—especially regarding tax, trade, and regulations.
- Tax policies: A major difference between the candidates lies in their tax policies. Harris aims to raise the corporate tax rate from 21% to 28%, while Trump wants to lower it to 15%-20%. On individual taxes, Harris plans to increase rates for high earners, whereas Trump seeks to make the current tax cuts permanent.
- Trade Policies: Trade policy marks another key difference between the candidates. While both adopt a protectionist stance, their strategies toward China vary. Harris favours targeted tariffs on industries and rivals, including Chinese tech products, while Trump proposes a sweeping 60% tariff on all goods from China. He’s also suggested a 10% to 20% tariff on imports from all countries.
- Regulations: The regulatory environment would also shift depending on the candidate in office. Harris plans to maintain the current administration’s stance on banking regulations, while Trump aims to implement broad regulatory cuts across sectors.
Here’s a quick comparison of the key policy differences between Trump and Harris:
What are the Scenarios and Potential Short-term Market Impacts?
For the outcome of the US elections, it’s crucial to watch not only who wins the presidency but also which party gains control of Congress. Here are four possible scenarios and their potential short-term market impacts.
- Scenario 1: Republican sweep
(Trump wins, and Republicans gain control of both the Senate and House)
Most analysts believe this is the most likely scenario. This scenario could bring the most significant policy shifts, therefore sparking substantial financial market movements..
Equity markets may initially react positively to lower taxes and reduced regulations. However, this optimism could be offset by concerns over inflationary pressures stemming from higher tariffs and intensified trade tensions. Interest rates and the USD are also expected to rise initially as markets adjust to these changes.
- Scenario 2: Trump win, with split Congress
(Trump wins, but Democrats maintain or take control of one or both chambers of Congress)
In this scenario, major tax changes may stall under a split Congress, shifting the policy focus toward higher tariffs and lighter regulation.US equities may still react positively, but at a more moderate pace than in Republican sweep.
- Scenario 3: Democratic sweep
(Harris wins, and Democrats gain control of both the Senate and House)
A Democratic sweep would be disinflationary, which could result in interest rates and slight weakening of the USD. Equity markets may initially react negatively, primarily due to the increased likelihood of higher corporate tax rates.
- Scenario 4: Harris wins, with split Congress
(Harris wins, but Republicans maintain or gain control of one or both chambers of Congress)
This setup represents the status quo, with a policy standoff likely leading to a muted market reaction. Markets may respond positively to the reduced likelihood of aggressive policy shifts.
Fundamental Factors Drive the Long-term Performance
While headlines and investor sentiment can drive short-term market swings, long-term performance is largely shaped by fundamentals. Key factors like inflation, economic growth, and central bank policies, and corporate earnings have a more lasting impact than election cycles
Looking back at the last 10 elections from 1984 to 2020, the market’s initial response to election outcomes often proves misleading. Stocks fell the day after Election Day in six of these elections and declined a month afterward in four instances. However, these drops were typically short-lived, with only one instance of negative returns a full year after an election.
Bottom Line
Currently, the US economy has been resilient and is expected to achieve a soft landing. The Fed is poised to continue cutting interest rates. The mix of resilient growth and lower interest rates creates a favourable environment for equities.For those with a higher risk tolerance, any market dip caused by the US election results could present a compelling opportunity to increase your equity exposure for the long term. Syfe’s Core Equity100 portfolio is well-suited for this, offering a diversified portfolio optimised for superior long-term returns.
