With only a few weeks before voting starts in the US presidential election, Kamala Harris and Donald Trump are engaged in a tightly run and closely watched contest for the nation’s highest office. Each candidate offers divergent visions for the country’s future, and investors are paying close attention to the campaign’s unfolding debate on key economic and political issues.

Ultimately, the outcome of the election is likely to have far-reaching implications for the US economy, as well as more broadly, but what might this mean for investors?

The US presidential election is heating up, and with just a few weeks to go until Election Day on 5 November 2024, if the latest polls are anything to go by it is a neck and neck race.

Kamala Harris has a real chance of becoming the first female president of the USA. However, if Donald Trump wins the electoral majority again, he could become the only US president to be elected twice without ever winning the popular vote.

Voting intentions

Data as of 17 September 2024
Source: RealClearPolitics, Macrobond, Julius Baer Research.
Note: The vertical line at the end of July shows when Biden withdrew from the US presidential race and Harris was designated to replace him.

The race for the US presidency remains extremely tight. As a matter of fact, the decision on who will become the next US president is in the hands of a small number of states. Indeed, just six of the US states – Arizona, Georgia, Michigan, Nevada, Pennsylvania, and Wisconsin – could ultimately hold the key to the White House, and it may even come down to what they call The KeyStone State – Pennsylvania.

In the Senate race, the polling data favours the Republicans. 34 of the total 100 seats are up for grabs, with the Democrats defending about twice as many seats (23) as the Republicans (11).

In this landmark US election there no certainties, only probabilities.

What if Trump wins?
A Trump win in which the House of Congress is controlled by the Republicans, which is one likely outcome, could significantly impact the economy, driven by the extension of tax cuts. While this would mean much higher deficits over time, it could also boost growth (and inflation) and raise interest rates in the short term. Cyclical sectors like banking and oil & gas would thrive in this environment. These sectors, along with healthcare, may breathe a sigh of relief too, given the relatively ‘light touch’ regulation approach favoured by the Republicans compared to the Democrats. Likewise, smaller US companies may benefit from improved conditions due to increased nominal growth, lower taxation, and reduced bureaucratic hurdles. However, concerns about debt sustainability could swiftly drive investors towards safe havens, potentially lifting gold prices and weakening the US dollar. Finally, a Republican-led administration, which is seen as more crypto-friendly than the Democrats could help this nascent industry to grow further.

What if Harris wins?
A Harris presidency, in which Democrats do not have control of Congress is another likely outcome. In this scenario, the passing of significant legislation would likely prove challenging, which may limit the market impact. That said, certain equity market sectors may still be positively impacted by the policies of a Democratic administration. For instance, companies engaged in home building stand to benefit from Harris’ stated objective to build three million new homes to address housing shortages. Likewise, a Democratic administration may pursue policies related to green energy transition, supporting renewable utilities and industrial gas companies. Finally, from a taxation perspective, companies with already high effective tax rates may be relatively less impacted should top corporate tax rates rise as announced by Harris.

Republicans or Democrats: Which does the market prefer?
Over the years the performance of the Dow Jones Industrial Average (DJIA) has been analyzed extensively based on which political party controls the presidency, and historically the results are mixed.

Here’s a broad summary of the trends:

Democratics
Under Democratic Presidents, on average the stock market, including the Dow Jones (DJIA), has historically performed better under Democratic presidents. A study of market data from the early twentieth century until recently suggests that the DJIA often sees higher returns during Democratic administrations. This is usually attributed to various factors like economic conditions, fiscal policies, as well as external factors like wars and global crises.

Republicans
Under Republican Presidents, while the DJIA does not perform as strongly on average as it does under Democratic presidents, Republican administrations have still seen positive returns over time. Republicans are generally known for being more business-friendly, advocating for tax cuts and deregulation, which in turn can create favourable conditions for certain sectors of the economy, though the overall stock market performance might be more modest.

Additional factors
That said, the stock market is influenced by many additional factors, including the global economy, Federal Reserve policies, inflation rates, and geopolitical events. It can therefore be difficult to attribute stock market performance solely to the party in control.

Summary
In summary, US equities have demonstrated resilience and delivered strong performance across different administrations. This trend suggests that the underlying fundamentals of the US economy and market dynamics tend to drive returns, rather than short-term political developments.
As a result, Swiss investors may consider maintaining a significant strategic allocation to US equities, recognising the country’s enduring appeal as the world’s hub for innovation and growth.

Make an appointment now

At Blackden Financial we have been advising our clients in Switzerland for the past two decades on just such decisions, so for a no obligation meeting call, +41 22 755 0800, by e mail info@blackdenfinancial.com or complete our Contact Form here

One of our team will contact you and arrange a suitable time to discuss how our service can work for you, and how to get the ball rolling.