In a few hours we will know, after a head-to-head race until the end, which of the two candidates the American citizens want as their president: if Kamala Harris o Donald Trump. The markets they are already preparing with some moments of fibrillation.
The candidates are very different from each other and the choice of one or the other will have a very different impact, depending on the winner, on the US economy, on international trade, on geopolitics and on immigration. Economists agree that both candidates they will make the dough rise again deficit and debt, but Trump will do more based on his fiscal promises. So we can expect a large mass of new emissions, un increase in long-term returns of government bonds and therefore also a growth of cost of debt. This aspect would be further complicated if, as highly expected, a rising inflation, which could be caused by the duties imposed from Trump, to whom the Fed will answer holding close monetary policy strings, i.e. keeping rates high. Economists are fairly certain about the movements of some sectors, depending on the winner. But in others there are still grey areas.
Former President Donald Trump faces off against incumbent Vice President Kamala Harris in the elections on November 5thVoters will also elect members of the U.S. House of Representatives and Senate, which are expected to remain split between the Republican and Democratic parties.
Promises from candidates
Summarizing the messages sent. On the one hand Trump promises tax cuts for companies and individuals, but also rates for foreign companies, in addition to mass relocations of immigrants and a review of government departments. On the other Harris focuses on middle class, on the home shopping and on the expansion of thehealth care, while he wants to increase the corporate taxes and to ultra-rich. In common there is that both candidates seem destined to further increase the budget deficit. However, fiscal responsibility is low on the list of key issues for voters. “Presidential elections are based so much on personality, as on the policies and will have significant implications for global markets, he says. Mike Mullaney, strategist and Director of Global Markets Research at Boston Partners.
Joe Biden's Legacy: Yep and Nope?
To better understand what will happen, we need to start from the facts, that is, from thelegacy left by outgoing president to see what can be maintained, expanded or rejected by the new president. “The Biden presidency has managed to obtain concrete results and the number of major reforms and legislative measures approved has, according to many observers, “few precedents” in recent decades. observes Antonio Cesarano, Chief Global Strategist of Intermonte. The flagship of the Biden administration was the approval of “a very large fiscal stimulus plan, be like sectors, Both for the amounts put into play”. The Senate approval of the “Inflation Reduction Act” concludes a very positive period for Biden and his administration. Some American newspapers including the New York Times they talk about a "turning point” and nearly all point to the plan’s imminent entry into force as its most obvious success.
This is a massive economic package that will allocate unprecedented funds to the fight against climate change and for public healthThere are numerous areas of action, among which the 370 billion dollars of financing for tax relief for the electric car and the production of energy from renewable sources. It also extends the enlargement of thefree medical care for the poorest segments of the population, in addition to granting federal health insurance the possibility of to deal i drug prices directly with manufacturing companies. Even larger plans had previously been approved, including the $1900 trillion American Rescue Plan to deal with the impact of the pandemic along with the $1200 trillion Infrastructure and Jobs Act to renew physical infrastructure (bridges, roads etc.) as well as digital (broadband connections). But health and the environment will be the sectors that could be threatened by a Trump victory.
“Whoever becomes the next US president will inherit apretty healthy economy. According to the Fed, Q3,4 GDP came in at a robust 50%, while corporate earnings and forecasts were positive. Meanwhile, inflation continues to rise and, in our view, the Federal Reserve is poised to cut rates by another 2024 basis points by the end of the year. This is a great backdrop for risk assets, which we believe will end XNUMX with a positive return regardless of the election outcome,” he notes. Evan Brown, Head of Multi-Asset Strategy, UBS Asset Management
Debt has grown, but both candidates will make it grow more
Of course, such large-scale allocations have had impact on US public finances, with widening deficit and debt and strong increase in cost of debt, currently around $1200 trillion, or about 25% of tax revenues. Not only that, but Biden has often been accused of excessive fiscal policy that would have contributed to hyperinflation from 2021 to 2023, Cesarano notes.
Starting from the debt, both candidates are currently indicating programs that will lead to a further increase in debt on a ten-year horizon, but will be much more pronounced in the event of a Trump victory, economists agree, especially given the high cost of transforming the tax relief (currently expiring in 2027) in permanent cuts: according to estimates by the Committee for responsible budget, debt would increase of $3950 trillion and $7750 trillion in the event of a victory by Harris or Trump respectively.
The Double Face of Taxes & Tariffs
The fiscal issue, and its effect on the US deficit and national debt, will once again take center stage.”Trump wants to reduce taxes for companies from 21% to 15% and promised to also extend the tax cuts for natural persons of his previous presidency,” he says Mullaney. Harris provides for a financing based mainly on a remodulation of the tax burden, shifting it to the wealthiest groups, while Trump's program is more focused on thewidespread imposition of duties, especially on goods coming from China.
But imposing tariffs historically brings other disadvantages. Plans have recently been announced to impose duties of 60% on Chinese goods and 10% on all other imports. At the Economic Club of Chicago, Trump intensified this rhetoric, focusing especially on the sector automotive. Moreover, on these issues, based on the concept of US national security, the president can impose tariffs without the approval of Congress, as Trump did in 2018 with aluminum and steel. Economists of Goldman Sachs estimate that Trump's tariffs in 2018 and 2019 increased prices by more than 3% on a variety of goods. They now predict that a 20% tariff on Chinese goods would delay inflation from reaching 2% by about 18 months, while a 10% tariff across the board on imported goods could accelerate inflation toward 3%, with a peak expected in the summer of 2026.
Furthermore, Trump's “America First” approach could lead to greater friction with China and less support for Ukraine, which could cause great geopolitical uncertainty in Europe,” he says Peter potter, Head of Equity Strategy at BG SAXO. “It could also lead to some manpower shortages, Then higher wages, more inflation and disruption of global supply chains with the semiconductor industry at greatest risk. This would benefit US SMEs and potentially economic growth, the gold market, banks.
Market Reactions: Half of Investors Won't Change Course
Retail investors are weighing the potential impact of the next president on the stock market, on specific industries and on companies in the United States and globally, notes Pawel Cylkowski, market analyst of eToro. However, he adds, the latest eToro Retail Investors Beat survey reveals that the 52% of retail investors have not changed their portfolios and does not intend to do so in response to the election. Historical data shows that the S&P 500 index has risen during the tenure of 13 of 15 presidents since Franklin D. Roosevelt's election in 1933, with average annual returns ranging from 10% under Kennedy and Johnson to 17% during Clinton's tenure. The exceptions were Nixon (-1%) and George W. Bush (-4%), both of whom led economic crises.
Short-term reaction: large issues and rising long-term rates
La market reaction in the first months after the winner is announced it could be more epidermal, compared to that on a longer horizon, observes Cesarano. In the first months, the enormous expenditure planned by both candidates will tend to translate into heavy Treasury issuance and then into long-term rates on the rise, a situation that the market is already anticipating in these pre-election days. A further increase in long-term rates could occur if Trump's victory were associated with a Single-color Republican Congress. On the front dollar, Trump's more expansionary and potentially inflationary maneuvers are already having repercussions in terms of a stronger dollar. Again, the effect could be amplified in the case of a single-party Republican Congress. At the same time, for the bags in both cases it would be a scenario favorable, given the programs in any case of high expenditure.
“It is likely that the stock market initially go down if it enters Harris and initially rises if Trump takes office because of the tycoon's proposals to reduce corporate tax rates and promises to deregulate several sectors. I also expect his election to initially favor domestic companies, given expectations on tariffs" he says Mullaney. “Harris will raise taxes and it is easy to understand how the math of his plans works. Goldman Sachs estimates that the impact of his tax policies on the earnings per share of the S&P 500 is -8%. So, the S&P 500 will have to reposition itself”
Longer term reaction
On a longer-term horizon, the implementation of the programs could prove to be much more gradual than was emphasized during the election campaign. Consequently, therate increase of the first few months could partly be recovered, he notes Cesarano. In Trump's case, moreover, the impact could be less inflationary than feared, if one thinks for example of the calming impact on the price of gas and oil which could exert the greatest push towards extraction. dollar in turn it could then depreciate, to take into account the worsening trend of public accounts. Also in 2016 for example the dollar went from 1,10 to 1,04 from November to December and then returned to 1,20 at the end of 2017.
The most involved sectors depending on the winner
On the sector front, the small and medium-sized companies could be supported in the short term by Trump's victory, in line with the greater propensity for repatriation of production. In the event of a Harris victory in the short term, sectors linked to energy transition. On a longer horizon, the driving sector could still prove to be the one technological, regardless of who is victorious, continues Cesarano
More specifically, sectors that could see more shocks, positively or negatively depending on the winner, could be those of luxury, telecommunications and financial services. The defense, healthcare and energy sectors could also be significantly affected. If Trump wins, the budget for the defense could increase, to the advantage of companies such as GE Aerospace, Lockheed Martin and Palantir. On the contrary, if Harris wins, the Health could take precedence, favoring companies like UnitedHealth, the largest U.S. health insurer, he says. Cylkowski. Also Philip Diodovich IG Italia sees a possible boost in the defense sector, given Trump's considerations to increase military spending, but also adds stocks closely tied to Donald Trump such as Trump Media & Technology, the financial sector, the big banks for deregulation and for less stringent rules on the banking sector and probably Tesla given Elon Musk's support for Trump.
All the Italian sectors that could be affected: from Ferrari to Campari to BTPs
Looking at stocks with a strong exposure to sales outside Europe, possible protectionist policies or new incentives for American industry could weigh on Italian exports, especially for those companies that do not produce on US soil, he notes Gabriel Debach, Italian market analyst eToro. Among the most vulnerable sectors we find the luxury, the consumer goods, the automotive, the tech and'heavy industry, with names like Ferrari and Campari at the forefront. A protectionist context could represent an additional challenge, just when many European companies are already suffering from the slowdown in Chinese demand, which has put pressure on their results. If this weakness in China were to be compounded by a contraction in the American market, the repercussions for our exporters would not be long in coming, Debach points out.
Finally, the choices of the next US president will also have an impact on interest rates global and, therefore, on construction sector . A possible increase in the American deficit could in fact push rates up, increasing financing costs for Italy and lowering the attractiveness of our stocks of state unless there is an increase in yields.
On the environment the poles seem to attract each other
A separate chapter should be dedicated to the sector of environmental policies, where the positions appear closer than they might seem. Generally Trump is against stimulus measures for the energy transition, but his position has recently been tempered on the electric car front by Elon Musk's support for the election campaign, he says Cesarano. At the same time Harris has partly scaled back support for environmental policies, for example making a 360-degree U-turn on the issue of oil and gas extraction through fracking, now saying he is in favor. This is a change that is probably now also driven by the need to succeed in obtaining some important states that are still in the balance, such as Pennsylvania, where the economic impact of extraction, especially of gas, through the technique mentioned above, is very high.
The impact on stock prices then it's certainly not in this sector. During Trump's first term, investors favored companies like Exxon Mobil and Chevron, but the oil sector has halved in value due to falling oil prices, he notes. Cylkowski. Renewable energy stocks initially rallied after Biden took office, though many of the targets proved costly. Some companies in the sector, such as First Solar, could benefit from Trump’s protectionist stance, as he plans to increase tariffs on competing imports from China to boost U.S. manufacturing.
Bipartisan issues
Then there are also bipartisan issues, such as the infrastructure and technology. Both Republicans and Democrats agree that U.S. infrastructure is in dire need of investment, he says. Cylkowski. In technology, the United States wants to maintain its lead over China. Both parties also face budget challenges and a growing national debt, which consumes 9% of the U.S. budget, as well as labor shortages.
