In this multi-election year, the U.S. presidential election is only two months away. At a critical moment in the campaign, the presidential debate between Vice President Harris and former President and Republican candidate Trump will be held on Tuesday local time.
For Wall Street, the standoff could add another layer of volatility at a time when uncertainty over the job market, interest rates and geopolitics has investors nervous. The S&P 500, fresh off its worst week since March 2023, rebounded on Monday after another disappointing U.S. jobs report on Friday rekindled concerns that the economy is cooling. From policy insights on taxes, trade, tariffs and immigration, here are the issues investors will be watching in the debate.
tax
Trump has said he would cut the corporate tax rate to 15% from the current 21%, vowed to make the 2017 tax law that Republicans passed in full permanent, and pushed for updates to key parts of the bill. Harris, meanwhile, is pushing to raise the corporate tax rate to 28%. Her plan proposes keeping the tax rate unchanged for those earning less than $400,000 while raising taxes on higher incomes.
Trade and tariffs
Trump has talked about imposing tariffs of 10% across the board and higher tariffs on Chinese-made goods. While Biden announced earlier this year a broad range of tariff increases on Chinese imports, including semiconductors, batteries, solar cells, critical minerals, steel, aluminum and electric vehicles, Harris' campaign message suggests that while she won't go soft on China, she sees no benefit in a further rupture between the world's two largest economies. Goldman Sachs economists say that if Trump wins, tariffs on goods and cars imported from China could come soon, which would increase the effective tariff rate by 3 to 4 percentage points and core personal consumption expenditure inflation by 30 to 40 basis points at its peak.
Immigration issues
Trump has said he would simply deport undocumented immigrants. Harris has expressed support for an immigration deal that includes building additional border walls. Meanwhile, Democrats have closed the U.S.-Mexico border and rejected some asylum applications. JPMorgan strategists say any effective restrictions on immigration could be a potential driver of inflation if they create a severe labor shortage, thereby curbing economic growth. Goldman Sachs Group Inc.'s index tracking bipartisan trading strategies shows that Democrats began to outperform Republicans around the time Biden resigned as a candidate and endorsed Harris.
What do the election-year data show?
Election years are typically good for U.S. stocks. The S&P 500 has risen in nearly every election year since 1960. The only exceptions were 2000 and 2008, which were affected by the dot-com bust and the financial crisis, respectively. In recent election cycles, the record looks even better. In three election years since 2008 — 2012, 2016, 2020 — the benchmark index rose by at least 10%.
A narrower view, focusing on just the last seven months of an election year, yields similar results. The S&P 500 has risen during that time in 16 of 18 presidential elections since 1950, according to data and analysis from the Stock Trader’s Almanac. The exceptions were 2000, when the results were delayed 36 days, and 2008.
There are too many uncertainties
Although Harris has surged in recent polls, market experts warn that the election could remain close until the final minute and that there is a small chance that the result won’t be known until days after the election. Experts point to the potential for a contested or close election result and mail-in voting, which can take longer to count than machine voting.
During the 2000 Florida election recount battle, the S&P 500 fell more than 4%, the 10-year Treasury yield fell 52 basis points, and gold prices soared as investors flocked to safe-haven assets. The possibility that the election could end in a protracted dispute or, worse, political violence is also a question investors are grappling with. If that happens, especially if it also means uncertainty about the final outcome, expect markets to struggle.
What does the “fear index” suggest?
Any major event that could impact the economy and disrupt the markets can lead to volatile trading. Elections are no exception. The futures curve for the CBOE Volatility Index (VIX), known as Wall Street's "fear index," suggests that stock market volatility will increase after Election Day on November 5.
In addition to CBOE VIX futures, investors trying to gauge stock market sentiment around the election can now look directly to S&P 500 options tied to the voting period. S&P 500 options for Nov. 6 show traders are currently positioning for a higher probability that the index will fall sharply that day compared to the day before.
Stocks to watch if Harris wins
A Harris win is expected to benefit a range of industries, including renewable energy companies, electric vehicle makers and even utilities. However, in contrast to Trump's more extreme rhetoric on trade and tariffs, the bigger bet with Harris is that she can avoid a trade conflict with China.
The Democratic Party's aggressive stance on clean energy means Harris' win is good news for the entire industry, with beneficiaries including electric vehicle manufacturers such as Tesla Inc, Rivian Automotive Inc and Lucid Group, electric vehicle charging network operators such as ChargePoint Holdings Inc, Beam Global and Blink Charging Co., as well as suppliers and battery manufacturers.
Solar stocks — which include First Solar Inc., Sunrun Inc. and Enphase Energy Inc. — are also expected to perform better under Harris because the Democrat supports renewable energy.
Home builders could also get a boost. Harris has proposed providing up to $25,000 in down payment support for first-time homebuyers and tax incentives for builders who build first-time homes. She also called for a $40 billion innovation fund to spur innovation in homebuilding. Watch stocks like DR Horton Inc., Lennar Corp. and KB Home.
Cannabis stocks also generally perform well under Democratic leadership, with names to watch including Tilray Brands Inc., Canopy Growth Corp., Curaleaf Holdings Inc. and the AdvisorShares Pure US Cannabis ETF.
The financial sector may struggle to benefit as a Harris administration is expected to continue tight regulation, imposing higher capital requirements on banks such as Bank of America, JPMorgan Chase & Co. and Goldman Sachs Group Inc., and credit card fee income will continue to come under pressure. Drugmakers could also face regulatory pressure as Harris has proposed a $2,000 annual cap on out-of-pocket spending for prescription drugs.
Stocks to watch if Trump wins
Companies with high revenue exposure to China could face disruptions if trade tensions escalate. Some notable names include chipmakers such as Nvidia, Broadcom and Qualcomm, materials companies such as Air Products and Chemicals Inc. and Celanese Corp., auto companies such as Tesla and BorgWarner Inc., and industrial companies such as Otis Worldwide Corp.
Oil, gas and traditional energy companies are seen as possible beneficiaries of a Trump victory, given that Trump has vowed to lift restrictions on domestic oil production. Stocks to watch include Baker Hughes, ExxonMobil, ConocoPhillips, Occidental Petroleum and Williams, Halliburton, Devon Energy, Chevron, and others.
Clean energy and electric vehicle companies that benefited from Biden's Inflation Reduction Act are expected to face challenges under Trump, as he has said he will completely overturn Biden's electric vehicle policies. If Trump cancels the tax credit for buyers, companies at risk include Tesla, Rivian and Lucid, as well as battery manufacturers and parts suppliers.
Defense stocks are expected to perform better in the event of a Republican win, as defense spending is expected to be a clear priority for the GOP. Stocks to watch include Lockheed Martin Corp., Northrop Grumman Corp. and RTX Group. Similarly, prison stocks such as GEO Group Inc. and CoreCivic Inc. could also rise, as strict immigration policies would benefit operators of prison facilities.
Shares of gun makers such as Smith & Wesson Brands Inc. and Sturm Ruger & Co. Inc. also tend to rise on Republican wins. Crypto stocks have recently been seen as proxies for the "Trump trade" as the former president has made an about-face on Bitcoin and other digital assets, even pledging to make the U.S. the "crypto capital" of the world. Stocks to watch include Coinbase Global Inc., Marathon Digital Holdings Inc., Riot Platforms Inc., Cleanspark Inc., MicroStrategy Inc. and Cipher Mining Inc., as well as the Bitwise Crypto Industry Innovators ETF.
Shares of Trump Media & Technology Group Corp., the parent company of the Truth Social platform, in which Trump has a majority stake, could rise as the likelihood of a Trump win increases. Also likely to benefit is video-sharing platform Rumble Inc., in which Trump running mate JD Vance’s venture capital firm Narya held a stake as of May.
Article forwarded from: Jinshi Data
