Election 2024: Themes to Watch

Election season is heating up, creating uncertainty in the markets as many investors consider which candidate will help — or hinder — equities more. However, history tells us that economic fundamentals drive market performance much more than who sits in the White House. In contrast, individual sectors and industries may be affected by a candidate’s proposed policies. Party differences around four main themes will likely have the greatest impact at a sector level. The themes we note are trade and tariffs, taxes, immigration as it relates to the labor market and Federal Trade Commission (FTC) changes due to their potential effect on mergers and acquisitions (M&A).

Because the race is currently so close, we expect to see volatility in equities leading up to the election as investors express their views on who will win. Once the new president and the composition of Congress are confirmed, we anticipate the market may price in some of the insights of this article, which analyzes how the four key themes may affect S&P sectors.

The themes:

1.      Trade/Tariffs

Many expect that Vice President Harris would maintain the status quo, which already includes tariffs on solar panels, steel, aluminum and goods from China, whereas former President Trump is likely to be aggressive. In the presidential debate, he indicated he might implement a 10-20% global tariff as well as a 60% tariff on U.S. imports from China. A president does have the authority to impose tariffs on his or her own, so it will be important to consider the potential impact they may have on inflation and global growth. The Consumer Discretionary and Consumer Staples sectors will likely be most affected by changes in trade policies.

2.      Corporate Taxes

The candidates are truly divergent on this issue. Trump will focus on maintaining or lowering corporate and personal taxes, whereas Harris has a more progressive approach to tax structure. During his term, Trump lowered corporate taxes from 35% to 21% and has mentioned lowering them again to 15%. Harris, on the other hand, previously indicated she would raise corporate taxes to 28%, according to CNBC and other news sources, although it is possible she encounters opposition in Congress. A higher corporate tax rate may adversely affect businesses across sectors.

3.      Immigration

Trump will likely institute stricter immigration policies and while many expect Harris not to deviate from the status quo, she has toughened her stance while campaigning. Limits on immigration could drive inflation upward through higher wages, and immigration policy will have an acute effect on sectors such as Consumer Staples and Information Technology.

4.      The FTC and M&A

The president appoints the FTC Chair and in its current form, the FTC has had a restrictive bent, making it difficult for companies to make meaningful acquisitions. M&A activity can help companies improve their competitiveness in several ways, such as allowing them to achieve economies of scale, diversify their businesses, and enter new markets. We would expect a more lenient FTC under Trump than under Harris, which would benefit sectors that rely on M&A like Information Technology, Financials and Healthcare.

In summary, we expect the following:

See the chart below for a more comprehensive look at how different sectors may be exposed to potential policy change. Still, the impact on sectors will depend considerably on the composition of Congress and what becomes law, as it is often very different than what is proposed on the campaign trail.

The Bottom Line

It is important to remember that historically the outcome of a presidential election hasn’t affected the aggregate market significantly as stocks can and have moved higher under all types of administrations. Don’t let campaign proposals influence your investment decisions because those policies often look different once a candidate takes office, frequently due to the checks and balances of Congress. Stick with your long-term investment plan aligned to your wealth goals; we believe it’s the best approach for navigating any near-term volatility that materializes as election day draws closer.