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The U.S. presidential election outlook underwent a reset after Biden’s decision to drop out and endorse Harris as the Democratic nominee for president. Since then and following the debate this month, Harris has taken a slight lead in most national polls, according to RealClearPolitics data. See the chart below.
The race appears to be close in key battleground states where Harris has closed Trump’s lead and made the race more competitive. Harris’ policy views have mostly been consistent with Biden’s – though she has outlined a number of new proposals including expanding the child tax credit and offering financial support for homebuyers. Yet both candidates could face constraints on enacting their agenda – especially on fiscal policy – if their party doesn’t hold unified control of Congress. This comes as federal regulation may face new limits after recent Supreme Court decisions.
Neither party has prioritized tackling the budget deficit. Harris has largely adopted Biden’s tax plan, such as higher corporate taxes, with some key differences like the capital gains tax on wealthy households. Trump plans to fully extend the provisions of the Tax Cuts and Jobs Act (TCJA) expiring in 2025 and propose new cuts, including to corporate taxes. Trump says he will boost revenues by levying tariffs on a broad range of U.S. imports. Control of Congress will dictate the size and scope of TCJA extensions and any government spending cuts. Deficits are one reason we see inflation staying above pre-pandemic levels.
Energy would be a key policy priority of either administration, including bipartisan agreement on the need for permitting reform to build energy infrastructure. U.S. oil and gas output hit new highs under Biden, supporting the energy sector. A Harris administration would mean a continuation of current energy policies, including support for clean energy. Under a Trump administration, Republicans would look to boost energy production and scale back implementation of the Inflation Reduction Act, like credits for electric vehicles. Yet we think the act is unlikely to be repealed entirely.
We see trade as another area with macro implications. Both candidates are likely to pursue additional export controls on national security grounds, especially in advanced technology. On tariffs, Harris is likely to maintain the status quo, with the potential for more targeted tariffs against China. Trump’s proposed 60% tariffs on China and 10%-20% broad tariffs would be a major escalation. Increased protectionism under either administration reinforces geopolitical and economic fragmentation, one of the structural factors we see keeping inflation higher medium term. Reduced legal immigration under either administration – though it is a centerpiece of Trump’s campaign – could also have implications on the labor market.
One area highly dependent on the election outcome is regulation. A Trump win could mean some deregulation, including the rolling back of regulation for banking in particular. Big tech may still be a target for bipartisan antitrust measures. By contrast, a Harris win could reshape the healthcare landscape through expanded Medicare or drug price caps.
Our bottom line. Policy differences between Harris and Trump are sharpening. Control of Congress will be key for assessing how their policy agendas could be implemented. We see potential impacts in sectors like energy, tech, healthcare and financials.
U.S. stocks struck new all-time highs last week, with small cap stocks leading the way. Stocks regained their footing after the Fed delivered a larger 50-basis point rate cut. We think the Fed’s mixed messages – speaking of solid growth and many more rate cuts to come – could mean abrupt policy changes and volatility. U.S. 10-year Treasury yields inched up to around 3.75% after reaching 15-month lows. The curve between two- and 10-year yields hit its steepest levels since mid-2022.
We watch U.S. core PCE data, the Federal Reserve’s preferred measure of inflation, for August out this week. The Fed’s mixed messages after its 50-basis point policy rate cut last week show that it risks being surprised again if inflation proves sticky, as it was at the start of the year. The hotter-than-expected CPI for August was a reminder that inflation pressures remain, and wage gains have not eased enough for inflation to stay near the Fed’s 2% target.
Wei Li, Managing Director, is the Global Chief Investment Strategist at Blackrock Investment Institute at BlackRock Inc. Catherine Kress, Head of Geopolitical Research – BlackRock Investment Institute, and Christian Olinger, Portfolio Strategist – BlackRock Investment Institute, contributed to this article.
Disclaimer
This material is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The opinions expressed are as of the date indicated and may change as subsequent conditions vary. The information and opinions contained in this post are derived from proprietary and nonproprietary sources deemed by BlackRock to be reliable, are not necessarily all-inclusive and are not guaranteed as to accuracy. As such, no warranty of accuracy or reliability is given and no responsibility arising in any other way for errors and omissions (including responsibility to any person by reason of negligence) is accepted by BlackRock, its officers, employees or agents. This post may contain “forward-looking” information that is not purely historical in nature. Such information may include, among other things, projections and forecasts. There is no guarantee that any of these views will come to pass. Reliance upon information in this post is at the sole discretion of the reader.
© 2024 BlackRock Inc. All rights reserved. iSHARES and BLACKROCK are registered trademarks of BlackRock, Inc., or its subsidiaries in the United States and elsewhere. This article first appeared February 20, 2024, on the BlackRock website. Used with permission.
Image: iStock.com/peshkov
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