Upcoming 2024 U.S. Presidential Election: Predicting Victory and Defeat
The 2022 U.S. presidential election is still a tight contest. With Kamala Harris becoming the Democratic nominee, Donald Trump's preferred status took a hit. Now, investors need to thoroughly analyze both Harris and Trump's campaign plans.
Trump's economic plan revolves around tax and trade policies. He intends to make the temporary tax cuts, set to expire in 2025, permanent. The corporate tax rate would be lowered from 21 to 15 percent to support businesses and investments. However, this will be funded by increased tariffs on imported goods. For instance, Chinese goods could face tariffs as high as 60 percent, while goods from other countries will see at least 10 percent hike.
Unlike Trump, Harris' plan is more varied. Alongside the environmental investment package, known as the Inflation Reduction Act (IRA), and the execution of the already passed infrastructure project, which provides investments worth $1.2 trillion in transportation, infrastructure, and technology, will be taken seriously.
However, a similar-scale spending program might not recur in a Harris administration, as Democratic-led governments have historically focused on fiscal restraints.
To finance these initiatives and other social programs, such as financial assistance for families and incentives for homeownership, without affecting the budget in the long term, Harris aims to increase taxes, but only for incomes exceeding $400,000 annually.
Assistance for Oil and Gas Sector
Regulatory matters also play a significant role. Trump is keen on easing regulations for oil and gas companies. Using his famous phrase "Drill, Baby, Drill," he advocates for increased oil and gas production at lower costs.
In such a scenario, oil and gas firms might benefit from a Trump victory. Conversely, companies in the renewable energy sector might experience stock price drops.
In the banking sector, Trump plans to relax regulations on liquidity and capital requirements, primarily benefiting small and medium-sized banks. However, these measures have been criticized by the U.S. central bank for contributing to the collapse of Silicon Valley Bank in the spring of 2018.
Harris opposed the relaxation of bank regulations in 2018 and as California's Attorney General, she took a tough stance against banks. She supported creditors affected by banks' lax lending practices before the financial crisis. Like the energy sector, bank stocks might benefit more from a Trump victory.
In the pharmaceutical sector, the focus is on Medicare. While Harris previously advocated for "Medicare for All," Trump might use a second term to revoke the Medicare price negotiation powers granted through the IRA.
Future for Silicon Valley Unclear
In the technology sector, candidates' positions aren't clearly defined. Although Elon Musk recently hinted that Silicon Valley is leaning towards Trump's side, Democrats traditionally have better relations with tech companies.
Draconian trade restrictions towards China, as proposed by Trump, could deter the tech sector. Harris, who hails from Silicon Valley, might show more understanding on antitrust issues. A Harris victory might not boost tech stocks, but it could dispel fears of escalating trade barriers.
Initially, a Trump victory could lead to improved stock performance in the sector in the short term, but predicting the potential secondary impacts on the financial market is challenging. Implementing Trump's agenda could ignite inflationary effects, making the Federal Reserve's job more complicated. A potential US dollar strengthening and higher interest rates could negatively impact the profits of S&P 500 companies, which earn around a third of their revenue outside the US, with some in the tech industry even exceeding 50%. A confrontation with China could also negatively impact US companies, especially in the tech sector.
However, the success of each agenda depends on the majorities in both US chambers. Currently, the situation is unclear, but Republicans have a stronger chance in the US Senate as Democrats need to defend more seats.
The 25,000 Euro Question
Given the unexpected outcomes the November election might produce, the second half of the year could witness further market volatility. Significant market declines should be seen as buying opportunities. A portfolio heavily invested in perceived safety, with a high bond allocation, risks losing real purchasing power in the long run due to inflation. Instead, investors should focus on robust stocks with promising growth prospects and healthy balance sheets. Gold and short-term bonds can supplement the portfolio.
Miraji Othman, an analyst and portfolio manager in the financial markets for over 15 years, has been working as a Senior Analyst at FIDUKA since 2023.
The implementation of Trump's economic policies, including his proposed tariffs, could potentially lead to inflation due to increased costs of imported goods. On the other hand, Harris' Inflation Reduction Act (IRA) is aimed at controlling inflation by encouraging investments in areas like transportation and technology.
Given the proposed fiscal policies of both candidates, the future tax burden might differ significantly. While Trump intends to fund his tax cuts and tariff increases through increased taxes on high-income earners, Harris aims to finance her initiatives mainly by increasing taxes for incomes exceeding $400,000 annually.
