We have not been found wanting for twists and turns throughout the US presidential election. Joe Biden sensationally (but not entirely surprisingly) decided not to run for re-election and instead endorsed Kamala Harris to run in his place, while Donald Trump has been the target of two separate assassination attempts – all this taking place in the span of 53 days.
Whilst Presidential elections can certainly dominate headlines and news cycles, from a historical perspective, data suggests that there is little evidence to show that either Democrat or Republican administrations exert any meaningful level of influence of stock market performance.
Whoever ends up becoming the next US President must have the support of Congress to enact any pieces of legislation that they advertise on the campaign trail. Pollsters are showing that neither the Democrats or Republicans will win an overall majority in Congress; and as such if any laws are to be passed, amended or entirely repealed this will require members of Congress to ‘cross the aisle’ and vote with the opposition, which doesn’t happen very often.
This is succinctly summed up by Chris Haworth, senior investment strategy director at US Bank Wealth Management:
the biggest policy advancements occur when one party controls both the White House and both houses of Congress. Based on polls, we’re a long way from that scenario at this point.
Democrats and Republicans often have vastly diametric views on issues such as climate change, immigration and foreign policy; this means that if either Trump or Harris bring forward any new pieces of legislation to Congress, it will need to be restrained and watered-down to win bipartisan support and be passed into law.
One such divisive topic is sustainability, and more specifically the Inflation Reduction Act. It appears unlikely that the IRA will be repealed regardless of who wins the election. Should Trump win a second term in the White House it is unlikely that there will be any large-scale reversals. As previously said, he would struggle to get any legislation through Congress due to the lack of a house majority and would also need to balance the fact that most IRA funding is being distributed toward Republican districts, leaving him in an awkward position.
Should Kamala Harris clinch the presidential nomination we would expect her to keep the status quo and current spending level; it is unlikely that there would be any increases in climate spending under her administration due to budgetary constraints (the US currently holds a $1.7 trillion dollar budget deficit – close to 6.3% of US GDP in 2023).
This brings us to another important point to consider. Neither Trump nor Harris have made any sign that they would cut government spending should they win the Presidency. Commentators suggest that this may be due in part to Trump and Harris having little incentive to talk about such a divisive issue. Instead, they have chosen to focus on the more positive aspects of their manifestos, such as talking about their many pledges. The Penn Wharton Budget Model estimates that under Trump the deficit would rise by $4.1 trillion, and under Harris this figure would be $2 trillion. As of 2024, the US national debt already stands at $28 trillion, which equates to around 99% of US GDP.
Another US institution where the President exerts little influence in the decision-making process is the Federal Reserve. Whilst the President can appoint the Federal Reserve Chair, they cannot induce the Chair to either cut or raise rates for their own political gain. Unsurprisingly, this is another point where Trump and Harris disagree.
During a press conference at his Mar-a-Lago estate, Donald Trump claimed that he believes that the President should: “at least have a say” in when and how the Fed raises or lowers interest rates. This was echoed by his running mate, JD Vance, who said that interest rate policy should be a political decision.”
The belief that interest rate policy should be politicised was strongly opposed by Harris, who told reporters that:
the Federal Reserve is an independent entity, and as president, I would never interfere in the decisions that the Fed makes.
All in all, there are two key takeaways to contemplate.
Firstly, large-scale policy changes are unlikely regardless of who wins the election. As previously highlighted, if either the Democrats or Republicans wish to enact sweeping policy changes, they will need control of Congress – which political commentators consider unlikely.
The second key takeaway is that it is too early to position portfolios based on an assumed outcome. As Prime Minister Harold Wilson once said, “a week is a long time in politics”. Given the current rate of how events are unfolding in this election cycle, it is impossible to predict who will end up in the White House and what policies they will champion.
Whilst it is easy to focus solely on Trump and Harris, there are many other factors which drive markets.
Please remember, this content is provided for information purposes only. Investment involves risk. Past performance is not a guarantee or indication of future results. Investment return and the principal value of an investment may go up or down and may result in the loss of the amount originally invested. All investors should seek professional advice prior to any investment decision, to determine the risks associated with the investment and its suitability.
