Listen to the audio version of the article
The election campaign for the US Presidential elections in November kicked off with the first debate between Kamala Harris, the Democratic Party candidate, and Donald Trump. Trump, a confident and dynamic party in the debate, gradually gave way to a confident and prepared Harris, who sought the consensus of liberals and financial markets. Harris, in fact, who until now had not given many details on her program, anticipated a reduction in taxes to 33% on capital gains (which are now 36%) and promised to help new businesses.
Over the summer, markets gave a taste of the possible reactions to the election results: as long as Trump was favored against Biden, the dollar remained strong, along with bond yields, and stocks were buoyant, thanks to the prospect of rising inflation due to import tariffs and the defense of corporate America.
However, when Kamala Harris entered the race and rose in the polls, investors began to price in more interventions on the Federal Reserve rates (which also hinted at the end of the restrictive policy due to the worsening employment) and, therefore, to weaken the greenback and yields. The Democratic Party, in fact, is traditionally more inclined to a fiscal policy in support of the less well-off segments of the population and more open to international collaboration.
Outcomes and consequences
At the moment, a couple of more likely scenarios are estimated from the polls: a Trump victory with control of the entire Congress (in these elections only half of the Senate is renewed), which – as Giuseppe Patara, Head of Portfolio Management Italy at Pictet Wealth Management, explains – would mark a decisive change of pace on the markets, and a Democratic victory with a contested Senate. “Starting from extreme scenarios – Patara specifies -, that is, the victory of one of the two candidates and the simultaneous majority in Congress of his own party, the programs show that the Republican victory would lead to a marked increase in tariffs on imports from other countries, thus increasing inflation and leading to a rise in interest rates, as well as a marked strengthening of the dollar. At the same time, a generalized tendency towards tax reduction policies would be combined with deregulation of some sectors such as traditional energy and finance, the effect of which could be positive in the immediate for the stock markets of the directly impacted sectors”. A continuation of the Democratic administration with the victory of Kamala Harris, however, would have more muted effects. “A new Democratic-led administration – continues Patara – would bring fewer changes compared to current policies, with public spending still relevant to support consumption, some adjustments in taxation, in particular with the increase in taxes on corporate profits, and the maintenance of the incentives for the green economy and electrification introduced with Biden’s Inflation Reduction Act. In the immediate term, there could be a reaction especially on the bond market, with rates falling in anticipation of a continuation of the Fed’s cycle of cuts, and on the dollar, destined to depreciate. Therefore, a Democratic victory would not be positive for the stock markets in the immediate term, but we do not believe it could undermine the long-term performance of US companies, especially if there is a Congress divided between the two parties”
The favorite sectors
The pillars of the two programs would have a particular impact on some industries. “The victory of the Democrats – says Simone Obrizzo, Portfolio Manager of AcomeA Sgr – would offer excellent potential to small caps, companies linked to the clean economy, utilities, software companies that analyze data on the quality of air and water and, finally, semiconductor companies that are functional to maintaining the dominant position that Harris wants to maintain on artificial intelligence. This last position is shared by Trump, but in the event of a victory of the Republicans it would be better to move on to big caps, companies linked to the defense sector, oil and, in general, to highly regulated sectors for the possibility of easing restrictions”.