2024 US election – implications for investors

CAMPAIGNS are, of course, about pledges and slogans, which may or may not become policy for the winning candidate. That is not just politics – realities often impose themselves and change the direction of policy. The pandemic and the global financial crisis are recent examples of when policy was forced to adapt to unforeseen challenges.

Candidates may also prefer to avoid comments on items they will inevitably confront, should they win election. In 2025, one of the most important realities the winner will face is a large US federal budget. The other is the expiry of tax cuts passed in 2017.

Based on what has been said, it seems likely that Republican candidate Donald Trump favours a full extension of the Tax Cuts and Jobs Act of 2017. Yet he may face a divided government, should the Democrats retain their majority in the Senate (unlikely) or regain it in the House of Representatives (quite possible).

If Kamala Harris becomes president and faces Republican-majority opposition in Congress, most of the Trump 2017 tax cuts will expire at the end of 2025 unless legislative compromise can be found. However, in any compromise legislation, Harris appears to favour maintaining current tax levels for individuals earning less than US$400,000 and a hike in the corporate income tax rate from 21 to 28 per cent.

Neither candidate has been willing to put forth credible plans to address medium-term deficit reduction.

Tariffs are another issue that may draw attention in 2025. As noted, Trump favours stiff tariffs on almost all imports from all countries. Harris has been quiet on the issue, though the Biden-Harris administration has kept in place Trump’s pre-existing tariffs.

Antitrust is another issue likely to surface in the next presidency. Already, the US Justice Department has won an antitrust case against Google (Alphabet).

And while both candidates and political parties rely heavily on campaign finance from business, business leaders and heavyweight investors, the groundswell of populist unrest about high prices, unfair competition, unionisation struggles and similar issues suggests that both candidates might selectively encourage antitrust and legislation to strengthen anti-competition laws.

Lastly, climate change policy, and its potential impacts on investment and spending via subsidies, taxation or regulation will be on the table for either winning candidate.

Trump has pledged to roll back many provisions in the Inflation Reduction Act, including subsidies for alternative energy and electric vehicle adoption. Harris, in contrast, would almost certainly keep those policies in place and would likely support new initiatives, albeit without yet having revealed what those fresh climate policies might look like.

Investment implications

First, it is too early to know how to invest based on the outcome, insofar as Harris’ entry into the race has made it a tightly contested election. Her presence may also help Democrats “down ballot”, meaning that even if Trump regains the presidency, he may face a divided government. Almost certainly, the odds of a Republican clean sweep of the presidency and both chambers of Congress have fallen. That makes it more difficult to know what kinds of policies will emerge in 2025.

Second, sweeping policy changes are unlikely, no matter who wins the election. This is not a contest between two competing economic ideologies. Each candidate’s proposals are targeted and incremental, not the kind of sea change that was the case when, for example, President Ronald Reagan and Federal Reserve chair Paul Volcker arrived on stage in the early 1980s.

But other takeaways are also important, particularly at the sector level.

The fossil fuel and pharmaceutical industries will likely welcome a Trump presidency, as they could see less regulation (fossil fuels) or greater pricing freedom (pharma) under Trump. A Harris presidency will likely offer more support for renewable energy and housing (given her stated aim to boost residential construction via incentives).

Lastly, it is important to place in context what elections and politics means for long-term portfolio returns. Which is to say, not very much.

US and global equity markets have thrived under Republican and Democratic control in Washington, as well as during periods of divided government. Setbacks, corrections and bear markets are also not strangers to any constellation of power in the nation’s capital.

Occasionally, of course, the tide of history changes with a presidency, as arguably occurred when Reagan came to power. Sometimes, presidents contribute to outcomes everyone can rejoice, such as deficit elimination, falling bond yields and strong growth under President Bill Clinton.

But for various reasons, 2024 does not appear to be one of those epochs. In our view, other issues voters care about may hinge on the outcome, but the state of the US economy and the broad performance of investor portfolios do not appear to be one of them.

The writer is chief market strategist and head of Franklin Templeton Institute