US election: Shortlists for a Trump or Harris victory – Saxo Bank
The stakes in US elections have risen sharply since the shock 2016 election result that saw Trump take the White House. This is especially true when US equities are more dominant than ever, comprising a staggering 65% weight, for example, in the MSCI’s ACWI Index. This global stock index includes both developed and emerging markets, including China.
Surveys show that Americans are more divided than ever on key political topics, which makes this election more existential for the future of the US. That’s because a clear victory by either side means government policy can head in very different directions. That includes in decisions that impact the most fraught geopolitical situations, from the Middle East to the continuing US-China trade war and the war in Ukraine.
The three scenarios
Three key election outcome scenarios are shaping up as the most probable that could lead to potentially quite different market impacts. We recommend reading our US election analysis for more in-depth analysis and views behind the three scenarios. Navigating the US election: An investor’s guide. The scenario probabilities below are as of early September, with election odds very finely balanced and could change.
- Trump clean sweep: In this scenario, Trump wins, and both the House and Senate have Republican majorities.
Probability: 45%
This scenario would likely lead to further tax cuts, although the US government debt situation is far worse than it was before Trump’s 2017 tax cuts. Trump has also indicated that he will pursue deregulation across the board. On foreign policy, a Trump clean sweep is seen as providing less support for Ukraine. The tax cuts and likely increased spending might help the US economy avoid recession but at the cost of a new inflationary wave as the US debt situation worsens, also, Trump has promised to deport millions of immigrants, which would further tighten the labour market.
- Harris gridlock: In this scenario, Harris wins, and the Democrats will probably take the House but not the Senate.
Probability: 45%
This is probably the worst outcome for the US economy as the Democrats and Harris will be severely constrained in their ability to shape any policy initiatives. This could lead to the inability to pass new fiscal policies or even extend the big fiscal programmes implemented by Biden and Trump. This negative fiscal impulse would create or worsen a coming recession. A gridlock scenario would also be a win for oil and gas majors as the Democrat’s green transformation would see a setback.
- Harris clean sweep: In this scenario, Harris wins, and the Democrats control both the House and Senate.
Probability: 10%
This scenario has the lowest probability, but it cannot be ruled out given the current momentum for the Harris campaign and some indications that the Democrats can flip enough seats for House control. However, the Senate is a far bigger challenge. This scenario would lead to more support for Ukraine’s war effort and a less aggressive policy on China. Harris expressed intent to raise corporate tax rates and capital gains tax rates, which would deal a blow to equity valuations and thus have a negative short-term impact on equities. Still, due to targeted fiscal spending, there are sectors that will benefit far more than in the other scenarios.
Shortlists for each US election outcome
Based on our analysis of the three US election outcome scenarios, we have devised three shortlists for inspiration on how to think about market impacts from this election. The more uncertain markets are about the election, the more concentrated and volatile might be the reaction as the votes are tallied on election night of November 5. The sectors and subsequent single stocks below are not meant as investment recommendations but instead our best guess of what sectors and stocks could do well in the given scenario. As the future is difficult to predict, these views come with high uncertainty. The single stocks listed below are simply selected by market cap for each sector view to be as objective as possible. This means that we have not considered fundamentals, valuations, analyst price targets or any other fundamentals when selecting these instruments.
Click here for more details on the shortlists for each US election outcome and to see the shortlist/baskets.
Last Updated on 4 months by News Desk 1
