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The US presidential race intensified when President Joe Biden unexpectedly withdrew. Vice President Kamala Harris emerged as his successor, despite initial concerns about her electoral appeal.
Harris quickly gained traction following Biden's endorsement, overshadowing Donald Trump. She swiftly secured support from key Democratic figures, amassing enough delegates for the party's nomination. Her campaign maintained its momentum, from selecting Tim Walz as her running mate to her formal nomination at the Democratic National Convention.
Harris' campaign faced a setback after a weak CNN interview, boosting Trump's team. As Harris's initial popularity wanes, attention shifts to policy specifics, which are currently insufficient.
The candidates differ on immigration, tariffs, foreign policy, and climate change. However, their economic policies' market impacts are less distinct.
Republicans typically favour lower taxes, while Democrats support more spending. Both candidates stick to these norms. Trump aims to extend his 2017 tax cuts beyond 2025 and further reduce corporate tax rates. Additional tax cuts are under consideration.
Investors generally prefer Trump for the November 5 election. But for voters, the benefits aren't clear-cut. The US has run large budget deficits since 2008, with government debt tripling to nearly $35 trillion.
A Trump win could add $5.8 trillion to the debt over a decade, per a Penn Wharton Budget Model study. Harris's policies would add $1.2 trillion.
Failing to address the growing deficit risks a debt crisis similar to the UK's mini-budget issue. Markets may not ignore this problem much longer.
Trump's main new revenue source is higher tariffs: 10% on all imports, 60% on Chinese goods. This could boost domestic manufacturing but raise costs for producers, retailers, and consumers, potentially hindering the Fed's inflation fight and limiting rate cut options.
These uncertainties with Trump's tax cuts and tariffs may lead some businesses to prefer Harris's continuity. Harris focuses on easing household cost-of-living pressures.
High inflation has overshadowed Biden's otherwise solid economic record. As vice president, Harris can't fully distance herself from this legacy.
Harris proposes capping food prices, building affordable homes, continuing drug price reforms, and expanding tax credits for families and workers, potentially appealing to many voters.
Democrats face a bigger risk from a potential pre-election job market decline. The Fed's likely September rate cut may come too late for voters. If job losses aren't matched by lower inflation, rate cut expectations and Wall Street gains may be limited.
Post-election stock market effects are unclear. Trump's tax cuts might boost consumer spending, but benefits may be limited if focused on the wealthy. His corporate tax stance favours large businesses.
Harris focuses on middle-class and small business tax relief. However, her proposed corporate tax increase from 21% to 28% could significantly impact Wall Street stocks, even if the broader economy benefits from Democratic policies.
Policy implementation depends on post-election Congressional makeup. Democrats control the Senate, Republicans the House.
A Trump win without Republican Congress control might require scaled-back tax cuts and compromise with Democrats, possibly preserving current corporate tax rates.
A Harris presidency with a split Congress could face challenges passing wealthy tax hikes. Some Democratic tax credits and spending increases might need alternative funding to gain Republican support.
A Republican-led Congress could be inflationary due to looser fiscal policy and higher tariffs, potentially keeping Fed policy restrictive. Trump's immigration stance might reignite wage pressures, further stoking inflation.
This scenario could strengthen the dollar. Stocks might initially benefit from lower taxes, but later face headwinds from tariffs and renewed inflation concerns.
A Harris victory would likely keep the Fed on an easing path, pressuring the dollar. However, tighter fiscal policy might not ideal for stocks, though rate cuts and a soft landing could eventually boost Wall Street.
Gold might struggle under Trump as interest rates may not decrease as much or could rise, reducing the appeal of this non-yielding asset.
Oil could perform well despite Trump's fossil fuel production push. Increased economic demand could boost oil futures. Trump's Iran stance and strong Israel support might escalate geopolitical tensions, potentially raising oil prices.
Democratic leadership doesn't eliminate geopolitical risks, but a more modest fiscal boost and ongoing Gaza ceasefire efforts might maintain current oil demand outlook.
With policies still developing, investors may view Trump as more business-friendly, potentially benefiting risk assets. While Trump's economic edge over Harris has narrowed, some investors may favour specific 'Trump trade' sectors or assets.
Cryptocurrencies are surprisingly part of the Trump trade. Despite initial skepticism, Trump now strongly supports the industry. Harris also favors digital currency growth, but her regulatory approach compared to Biden's is unclear.
As election day nears, surprises are possible as campaigns intensify and investors focus on polls, especially in key states. Trump's failure to gain ground after the sole televised debate suggests Republicans may struggle to regain momentum.
