Trump vs Harris - What are the key investment related policies

Following the recent news of President Joe Biden’s decision to withdraw from the US election race, the media frenzy around the 2024 US election shows no signs of abating. The race now is tight between Vice President Kamala Harris and former President Donald Trump. Both candidates are actively campaigning with the polls currently showing a very close contest. Harris and Trump are neck-and-neck in several key swing states and the outcome in states like Arizona, Georgia, and Pennsylvania could be pivotal to the final results which will be revealed on election day, (Tuesday 5th November). As expected, pundits from both sides are warning of economic consequences if the opposing party wins. Republicans criticise Biden’s deficit spending on environmental initiatives (a priority that is likely to persist), while Democrats warn of the risks associated with Donald Trump’s unfunded tax cuts. Ultimately, the key driver of equity returns will be tangible policy changes. Here are 10 key policy related areas for investors to keep a close eye on over the next few months:
 

1. Control of Congress: Winning control of Congress is as crucial as winning the White House. Key domestic policies, like taxation and spending, require legislation, which needs control of both the House of Representatives and the Senate. A split government would limit the winning candidate’s ability to enact changes.
2. Trump’s Legacy: Trump aims to extend his 2017 Tax Cuts and Jobs Act, making its provisions permanent and advocating for additional tax cuts.
3. Eroding Biden’s Legacy: Trump would likely repeal Biden-era climate expenditures and has criticised key laws like the Inflation Reduction Act.
4. Trade Policy: Trump proposes significant tariffs on imports, especially from China, which could raise costs of foreign-made goods for US consumers.
5. Immigration: Trump promises a major crackdown on immigration, which could lead to higher wage bills and hiring difficulties in industries reliant on this labour source.
6. Central Bank Independence: Trump supports bringing independent agencies under presidential control, which could affect market stability. Central bank independence is a key anchor for the economy and markets so this could cause market turbulence.
7. Stock Market Focus: Trump’s business-friendly agenda could be good news for rising equity markets.
8. Bond Markets: It might be not such good news for bond markets given Trump’s policies is already running a high federal budget deficit and will need to step up Treasury issuance to finance the gap. The issue is not whether the US has the ability to repay its debt but the yields at which they can issue debt.
9. Inflation Sources: Potential sources of inflation under Trump include rising tariffs and a potential combination of loose fiscal and monetary policies.
10. Predicting Winners and Losers: The table below summarises the key policy biases between the two front runners. Despite this information, predicting industry and company-level winners and losers remains difficult

The US election is likely to bring about uncertainty for investors due to its significant economic impact and the stark differences in policy proposals between the candidates. However, predicting the political outcomes and the precise economic impacts is notoriously difficult. There are often discrepancies between campaign promises, actual policy intentions, and what can realistically be implemented once in power. Particularly given this uncertainty, in portfolios we focus on ignoring the noise and sticking to our long-term investment goals and strategy. In the long term, changes in government policy have a more profound impact, especially considering the significant role governments play in the economy through spending, borrowing, and regulation. Traditionally, investors might have focused on different sectors (e.g. healthcare) or asset classes (e.g. bonds) for diversification, but it is also sensible to consider geographical diversification. Allocating into multiple overseas markets and getting exposure to different currencies can help mitigate the elevated political risk possible in the coming years.
 

Source: WTW

The Noise

• The UK’s services sector activity grew at the fastest pace since April in August, according to the latest Purchasing Managers’ Index (PMI). The PMI rose to 53.7 from 52.5 in July, indicating improved growth in the sector. The survey pointed to a more benign inflation outlook and added to signs of an upturn business since the July 4th election won by the Labour Party. Cost pressures for services companies and their selling prices increased at the weakest rate since early 2021, welcome news for the Bank of England ahead of their next Monetary Policy Committee on September 19th.

• Oil prices are set to drop significantly this week, with Brent and WTI – two major oil benchmarks – set to fall over 7% and 6% respectively. A week of mixed signals on the US economy showed a continued slowdown of the world’s largest economy and coupled with similar signals from China did little to support demand. This comes as OPEC+ sees its ability to influence the oil market diminish, given its considerable spare capacity. OPEC+ are in a position where they are already cutting production to support prices, so cutting production further may be difficult to agree to provide further support to prices.

• Reaching net zero is going to be a significant challenge for every industry, though some of them have it harder than others. The aviation sector contributes about 2% of global emissions, and over the years has seen various innovations that look to reduce its carbon footprint. One of the latest innovations is an ultra-thin ‘riblet’ film inspired by shark skin, that will cover planes and help them reduce drag. MicroTau, the Australian start-up responsible for creating the product, estimate it can help reduce emissions by up to 4%. The idea came from a challenge set by the US Air Force Research Laboratory, who were looking for ways to reduce their $8 billion a year fuel burn. Flight trials are already underway for the technology, with plans for it to be rolled out more broadly on commercial planes in 2025

The Numbers

The Nuance

It has been a busy week for those tracking US economic indicators, with a long list of key data points to keep an eye. As the Federal Reserve have conveyed time and time again, its interest rate decisions are data dependent. As a result, markets have been combing through data more than ever ahead of a potential first rate cut on September 18th.

Looking at the data released on Tuesday, US construction spending fell 0.3% in July, with economists expecting no change to spending. This was a result of higher mortgages and increased supply. This has forced builders to hold back on breaking ground on new projects. The manufacturing PMI improved slightly to 47.2 in August, but the index remains below 50, the mark which separates growth from contraction. New orders have continued to decline as inventories grow, suggesting factory activity could be subdued for a while. 

US job openings fell in July to the lowest level since the start of 2021, consistent with signs of slowing demand for workers. Economists had expected 8.1 million job openings, higher than the 7.67 million shown in the data. Job growth has been slowing, unemployment is rising, and jobseekers are having greater difficulty finding work. Policymakers are evidently worried about this and have made it clear they don’t want to see any further cooling of the labour market. The US service sector showed resilience, one of the few data points to avoid a contraction.

Given much of this week’s data improved the odds of a Federal Reserve rate cut, Treasury yields tumbled, boosting Treasury prices. The next data points to look out for will be for payrolls and unemployment, which will give further indication of the US economy’s direction of travel.