Harris or Trump? How the Next President Could Change the Game for Stocks, Taxes, and Inflation
You asked… so here it is.
We’ve had no shortage of clients asking us about the 2024 U.S. presidential election and how it’s going to affect the stock market, taxes, and inflation.
The truth is, this election presents investors with distinct scenarios, depending on whether Donald Trump or Kamala Harris wins. So, here’s a breakdown of the potential implications for each outcome…
Stock Market Trends
If Trump wins, the market might experience a boost due to expectations of deregulation and business-friendly policies. His previous administration’s approach, which included corporate tax cuts and reduced regulatory oversight, was viewed favorably by many investors and led to a market rally following his 2016 victory.
However, his policies could also bring heightened volatility, especially if protectionist trade measures return, potentially impacting companies with significant global exposure.
On the other hand, a Harris victory might introduce more uncertainty, especially in sectors like energy and finance, due to her progressive policies favoring increased regulation and corporate tax hikes. While this could weigh on market sentiment in the short term, it could also boost sectors aligned with her policy goals, such as clean energy and healthcare.
The long-term impact might depend on the extent to which her administration pursues structural reforms, which could stabilize markets by providing a predictable policy environment.
Tax Policy
Under a Harris administration, investors could expect higher taxes for corporations and wealthy individuals. Proposals might include raising the corporate tax rate and increasing capital gains taxes for high-income earners.
This could create headwinds for the stock market, particularly for sectors heavily reliant on favorable tax conditions, like technology and finance.
Conversely, Trump is likely to continue advocating for lower taxes and might seek to extend or expand the 2017 tax cuts. His administration could focus on incentivizing business investments and lowering individual tax rates, which could positively impact consumer spending and business profitability.
However, this approach could exacerbate concerns about the federal deficit and long-term economic stability.
Sector-Specific Impacts
If Harris wins, sectors such as renewable energy, electric vehicles, and healthcare could see significant support. Her policies might prioritize investments in green technologies and the expansion of healthcare coverage, which would likely benefit companies like Tesla, SunPower, and major pharmaceutical firms focusing on affordable care.
In contrast, a Trump victory could favor traditional industries such as oil, gas, defense, and banking. His policies may involve expanding domestic energy production and boosting defense spending, benefiting companies like ExxonMobil, Lockheed Martin, and JPMorgan Chase.
Deregulation efforts could also be advantageous for financial institutions, potentially driving growth in banking and investment sectors.
Inflation
If Kamala Harris wins, her administration’s policies could aim to tackle inflation through increased regulation and government spending on infrastructure, healthcare, and renewable energy.
While these investments might promote long-term economic growth, there is a risk that increased government spending could drive up demand and add to inflationary pressures, especially if supply chains struggle to keep pace with demand in areas like renewable energy and infrastructure. Additionally, raising taxes on high earners could potentially cool consumer spending, which may help control inflation but could also impact economic growth.
If Trump wins, his focus on tax cuts and deregulation could stimulate economic activity in the short term, potentially leading to an initial boost in consumer spending and investment.
However, without balancing these measures with policies to manage inflation, such as more conservative fiscal spending or monetary tightening, there could be upward pressure on prices. Increased domestic energy production could help contain energy costs and thus inflation, but this benefit may be offset by other factors, like certain trade policies, which could raise costs for imported goods.
Both candidates’ approaches involve trade-offs:
Harris’s policies could reduce inflation risks if they stabilize certain markets (like renewable energy), but may also create inflationary pressure due to increased government spending.
Conversely, Trump’s policies could boost economic growth more rapidly but carry the risk of fueling higher inflation if the growth is not matched by productivity gains.
An Analogy to Simplify it All
Think of the economy as a car on a road with speed limits (representing inflation risks). Both drivers have different approaches to navigating the road:
If Kamala is in the driver’s seat, she might focus on optimizing the route, investing in newer technology to make the car run efficiently (like renewable energy and infrastructure improvements). While her approach could smooth out some bumps in the road, the extra weight from new investments might make the car use more fuel (potentially driving inflation higher).
If Trump is driving, he might choose to accelerate quickly by reducing constraints (like regulations) and pushing the car to go faster with tax cuts. While this can help the car cover more distance quickly (boosting economic growth), it might also run the risk of the engine getting hotter (inflation) if the car doesn’t get the needed maintenance along the way.
In the end…
Not to be a cynic here, but Google tells me that, as a member of Gen-X, I’m both “disaffected and skeptical” by nature…
…but summarizing the different potential outcomes for this election reminds me of Linkin Park’s song “In the End.”
For those of you who don’t know the song, here are the lyrics to the chorus:
“I tried so hard and got so far
But in the end, it doesn’t’ even matter
I had to fall to lose it all
But in the end, it doesn’t even matter”
We had a new client in the other day whose friend told her that “If Kamala wins, they’re going to take away all your money through taxes, until you only have $250,000 left.”
Equally absurd and untrue, another client told us last week that their brother shared that “If Trump wins, he’s going to abolish Social Security and Medicare.”
Is anyone else exhausted? Because I am… <sigh>
Don’t get me wrong – I think most of us wish the United States of America could come up with a better pair of candidates than the ones we have to pick from this year.
However, it’s my (strong) opinion that, when this election is over, the stock market and financial system will be fine.
Will there be some sectors that out-perform others if one candidate or the other wins? Yes.
Will tax policies on either side of the fence affect economic growth and inflation differently? Yes.
…but if your favorite candidate gets voted in, will we all be okay? Will life go on? Will your family, friends, and health (still) be way more important than this article and everything about this Presidential election?
Yes.
So go outside, go for a walk, read a book, go out to dinner, hang out with your family, friends, and for the sake of your health and sanity, make it a plan to off-load the political stuff in your life a little early this election cycle.
Because I say to you, from the bottom of my heart, “In the end, it doesn’t even matter.”