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US elections 2024 and implications for the markets
September 17, 2024
Following Joe Biden's withdrawal, the election campaign was relaunched. Differences in gender, age and background between Harris and Trump promise an exciting race. The election platforms could hardly be more different. The outcome of the presidential race remains open. What are the implications for the capital markets?
Election predictions Harris vs. Trump
Following Joe Biden's withdrawal from the presidential race due to age and health reasons, the current vice-president and new presidential candidate Kamala Harris has quickly overtaken Donald Trump (according to the latest polls). The nomination of Tim Walz as running mate was also a well-considered, tactical move. The two were definitively confirmed as candidates at the party convention in Chicago and are being carried by a wave of support that is capable of mobilizing broad swathes of the electorate.
However, the political honeymoon is now likely to give way to reality and Harris must win votes with her election platform. Donald Trump's personal attacks are now being criticized within the party and some well-known Republicans are turning away from their candidate.
However, the race for the White House remains closely contested and is likely to remain so until election day on November 5.
The "swing states"
The balance of power in most US states is clearly distributed. In some contested states, the outcome of the election is uncertain. These "swing states" decide who becomes president. This year, these are Arizona (11 electors, Trump), Georgia (16, T), Michigan (15, H), Nevada (6, H), North Carolina (16, H), Pennsylvania (19, H) and Wisconsin (10, H). A total of 27 electors for Trump and 66 for Harris.
The TV duel in Pennsylvania
The TV debate in the controversial state of Pennsylvania has produced a clear winner. Donald Trump allowed himself to be provoked and manipulated by his opponent. Kamala Harris appeared somewhat tense at the beginning, but quickly regained her aplomb and skillfully fended off Donald Trump's attacks. Neither side held back with accusations and allegations. Kamala Harris countered Donald Trump's accusations and steered the discussion in a new direction. Substantive topics included the economy, inflation, migration, abortion and the war in Ukraine. Donald Trump's age made itself felt in phases.
Kamala Harris challenged her opponent to a second duel after the debate, which was rejected by Trump.
Conclusion: clear points advantage for Harris, which is also reflected in the poll results. Taylor Swift also announced her support for Kamala Harris on social networks and called for people to vote at the MTV Awards.
Latest poll results
The implied probabilities of the betting providers have been oscillating around a tie for several weeks and have switched back in favor of Kamala Harris after the TV debate. National polls of voters also show a very even result with a slight advantage for Kamala Harris. In the "swing states" there is currently a slight tendency in favor of Kamala Harris. However, it would be wrong to draw a clear trend here at the moment.
Implicit probability of the betting providers
Source: Bloomberg Finance L.P.
Key points of the Harris agenda
Bidenomics has so far successfully avoided a recession. Accordingly, it can be expected that Harris will essentially continue these, e.g. infrastructure programs and the promotion of alternative energies. The scarce supply of houses is to be increased through financial assistance for first-time buyers. In addition, monthly child allowances and tax deductions for children (Child Tax Credit) are intended to support families. This is to be financed by higher taxes for high earners, taxes on the assets of the ultra-wealthy, an increase in the tax on share buybacks and on corporation tax. Job creation remains a central concern of Kamala Harris should she win the election. Finally, inflation is to be controlled and reduced by a newly created price monitoring agency, which is viewed critically. Harris stands for integration.
Key points of the Trump agenda
The employment and tax packages from 2017 are to be extended. There are also plans to reduce corporation tax to 15%. Immigration and crime are to be combated. Trump is still aiming to repeal Obamacare, which already failed in 2017. Environmental protection and e-mobility are taking a back seat in favor of fossil fuels. The fight against inflation is also on Trump's agenda, but is to be combated by restricting state influence and deregulation. The increase in protective tariffs - and probably not just on Chinese goods - can be expected to have the opposite effect. Finally, Trump also intends to expand his influence on the Fed's monetary policy, which must be considered problematic from the perspective of an independent central bank. In addition, Trump stands for aggressive populism with the aim of securing global leadership for himself and America.
A comparison of the election programs can be found in the table at the end of this document.
Limits to the scope of action
The balance of power in Congress determines the implementation of the respective policies. The two chambers, the Senate and the House of Representatives, pass laws
with a simple majority. In the Senate, 34 seats are up for re-election, 23 of which are held by Democrats (including 3 independents). With a gain of two seats, the Republicans will achieve a majority, which seems likely. The House of Representatives, where all 435 members are elected every two years, is currently expected to go to the party that wins the race for the presidency.
In general, America's record-high debt of over USD 35,000 billion places the same restrictions on both candidates. A further trillion is added every six months or so, which will happen to a similar extent regardless of political color. It remains to be seen what return investors will demand to finance this debt.
The "Inflation Reduction Act" is a major annoyance for Trump. Under his presidency, the promotion of alternative energy sources would be promptly reduced or even stopped.
According to a study by Morgan Stanley, US debt is rising less sharply among Democrats than among Republicans.
Many of the projects targeted by both sides are subject to considerable inflationary pressure and contradict the primary objective of combating inflation.
Impact of the election outcome on interest rates and the US dollar?
Both election programs are based on higher spending and the expansion of debt. We assume that the US dollar will gradually depreciate as a result of this development. This will have the welcome side effect of increasing international competitiveness. On the other hand, the higher financing requirements will lead to rising yields on bonds with longer maturities.
Which sectors benefit?
The outcome of the election will also have different effects on shares. Not only who takes over the presidency, but also the balance of power in Congress will play a key role here. For example, Kamala Harris' announcement that she may also want to nominate Republican ministers could have a significant impact on the ability to push through proposals in the Senate and House of Representatives and also move the stock market. In the following table, we have highlighted in green those sectors that should benefit under Harris or Trump due to their election program.
Scenarios and their probabilities
There are four possible scenarios:
Scenario 1: The Democrats win the presidency as well as the Senate and the House of Representatives (blue wave).
Scenario 2: The Democrats win the presidency and the majority in the House of Representatives, but lose the Senate (Harris with a divided Congress).
Scenario 3: The Republicans win the race for the presidency and the majority in the House of Representatives, but fail to win the Senate (Trump with a divided Congress).
Scenario 4: The Republicans win the presidency as well as a majority in the Senate and House of Representatives (red wave).
Probabilities of presidency and voting ratios in Congress
Source: Aquila Investments
Election programs of the two presidential candidates
Harris
Trump
Economy
Combat (food) inflation through price controls, increase corporation tax from 21 to 28 %, increase tax on share buybacks from 1 to 4 %, cancel consumer debt
Extend tax cuts and employment law, reduce corporate tax to 15 %, fight inflation through deregulation and reduction of state interventionism
Immigration
Harris has changed her position since 2020, examining the role of immigration and customs authorities more critically
Immigration and border control is a key issue, hard line is enforced, fight against drug cartels, restoration of peace and public safety
Healthcare
Continue Biden's efforts to reduce drug costs, accelerate Medicare price negotiations, abortion rights should be reinstated at the national level
Fights Obamacare again (failed in 2017), abortion should be decided by states, cut sex-change programs
Education
Status Quo
Returning responsibility for education to the state level
Climate
Tactically drops ban on fracking and supports alternative energy to reduce pollution
Cut new car pollution rules, backs oil and gas industry, no final decision (Musk)
Justice
Introduce a term limit of 18 years for the Supreme Court
use the Ministry of Justice against (its own) enemies
Foreign policy
Ending the war in Palestine, creating a two-state solution, commitment to NATO and full support for Ukraine in the fight against Russia
Exert pressure on allies to achieve intentions and end the war in Ukraine immediately
Trade
Biden has already introduced higher tariffs, taking up Trump's proposals
Tough sanctions against China and other trading partners
Housing
Three-step plan to address the housing shortage by helping first-time buyers discourage investors from buying up properties
Development of "Freedom Cities" to create jobs and residential property
Disclaimer: Produced by Investment Center Aquila Ltd.
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