JPMorgan warns of unprecedented economic changes ahead as US election results threaten to reshape tax policy, government debt and market stability.

JPMorgan sees unprecedented changes afoot

Global investment bank JPMorgan released a report on Friday highlighting the potential implications of the US election on tax policy, government debt and market stability, and providing guidance on how investors can approach the election period.

JPMorgan analysts explained that with key provisions of the 2017 Tax Cuts and Jobs Act (TCJA) set to expire in 2025, Congress is likely to revisit tax policy, as failure to renew these measures could result in significant tax increases. The report detailed:

Overall, if the temporary provisions in the TCJA expire, individual tax rates would revert to higher levels, resulting in a 1.8% drop in after-tax income for all U.S. households, as well as a 3.1% drop for the top 1% of earners.

Given this situation, JPMorgan hopes that both parties can push for at least a partial extension of the TCJA, although the specifics will depend on the election outcome.

On the national deficit, JPMorgan predicts an increase under both candidates’ proposals, with potential implications for bond yields. “If all of the policy proposals from the campaign come to fruition (which is unlikely), the deficit could increase by more than $1 trillion over the next 10 years under Kamala Harris and nearly $4 trillion under Donald Trump. This is why it makes sense for bond yields to rise with a Republican victory,” the report notes.

While concerns about debt are obvious, JPMorgan argues that some of the fears may be overstated. The report explains:

While we view the debt and deficit trajectory as a risk, we think some of the fear is misplaced. In fact, current all-in yields are giving investors a second chance. For anyone who feels they missed the opportunity to add to core bonds, this could be your second chance.

JPMorgan also addressed the possibility of a prolonged or contested election, noting: “It is difficult to say when we will know who won this election, and we may not have a clear answer for a week or two. In the event of a close election, we expect to see court cases and other legal actions through the end of the year. It is important to note that the Election Count Reform Act of 2022 aims to strengthen the mechanisms to ensure clear implementation of election results.”

However, analysts advise investors: “Stock market volatility tends to decline relatively quickly after a new government is confirmed, and stocks are, on average, higher 12 months after an election. In other words, don’t let the election derail your plans—election outcomes don’t drive long-term market returns.”

This week, JPMorgan analysts led by CEO Nikolaos Panigirtzoglou also predicted that a Trump victory could push retail investors toward riskier assets, potentially boosting bitcoin and gold prices as part of a broader “dump trade.”
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