Trump versus Harris: The impact for markets

Former President Donald Trump faces serving Vice-President Kamala Harris in the contest on 5 November which would see the first female president of the US if Harris wins. Voters will also elect members of the US House of Representatives and Senate, which are expected to remain split between the Republican and Democratic parties.

In the keenly awaited presidential election, Trump is promising tax cuts for corporations and individuals but tariffs for foreign companies, along with mass deportations of immigrants and an overhaul of government departments.

Harris is focusing on the middle class, spending on housing and expanding health care, while increasing taxes on corporations and the ultra-wealthy. Both candidates seem set to increase the already mounting budget deficit.

However, fiscal responsibility is far down the list of key topics for voters, as the economy tends to rule the day when ballots are filled out, says Mullaney, Director of Global Markets Research at Boston Partners, Robeco’s sister company focused on fundamental value investing.

“The outcome of this election is perhaps the most bifurcated of all the recent US elections, given Trump’s history and proposed policies, and Harris’s platform that has been cobbled together hurriedly with her ascension to the top of the ticket,” Mullaney says.

“Another important factor in this election is the implied ‘flipping’ of Congress, as it appears likely that the House of Representatives (currently Republican) will change hands to Democratic control, while the US Senate (currently Democratic) is expected to fall under Republican control.’’

“No matter how the election results come in, it’s certain that there will be lasting effects for both US and global markets.”

The tax issue, and its effect on the US deficit and national debt, will once again take center stage. “Trump is going to cut taxes for corporations from 21% down to 15%, and he's promised to extend the tax cuts for individuals from his prior presidency as well,” Mullaney says. “On the campaign trail, he suggests a new, hypothetical tax break weekly.”

“It’s likely that the stock market is going to go up initially if Trump gets in, and go down initially if Harris gets in. The reason it would go up initially under Trump is driven by his corporate tax rate cut proposals and deregulation promises for several industries. I’d also expect his election to favor domestic businesses at first, given the tariff expectations.”

“Harris is going to increase taxes and it’s easy to see how the math works under her plans. Goldman Sachs estimates that the impact of her tax policies on the earnings per share of the S&P 500 is minus 8%. So, the S&P 500 will need to reprice based upon whether she can get those tax raises through Congress, and of course there's no guarantee that she can.”

The current polling (at 18 October) suggests that Harris has a slight lead, with 49.3% of the vote compared to 47.7% for Trump. Under the US system, however, that doesn’t necessarily translate into victory, since Trump won in 2016 because he won more seats than Hillary Clinton in the Electoral College, even though he marginally lost the popular vote.

Presidential candidates must gain a majority of 270 seats in the 538-seat College, which means winning the largest states like California (currently Democrat) and Texas (Republican) are essential. But it is the swing states like Pennsylvania that might hold the keys to the White House.