The Upcoming Showdown: Kamala Harris vs. Donald Trump and Its Impact on Investors
In just a few weeks, voters will head to the polls to elect the next U.S. president. The election will feature Vice President Kamala Harris and former President Donald Trump, each presenting distinct policy agendas.
As the election approaches, investors are positioning their portfolios to respond to the outcomes, considering how each candidate might influence the market.
The Legislative Branch’s Role
While the president can impact the stock market—such as Trump’s proposed tariffs on China or Harris’s potential tax on unrealized capital gains—much hinges on Congress.
Historically, the 21st century has seen Washington in a constant state of gridlock, with both parties reluctant to pass legislation that could benefit the opposing side.
Currently, Republicans control the House of Representatives, but the outcome on Election Day is seen as a toss-up. According to The Cook Political Report, around 26 House races are competitive, making control of the House uncertain. In the Senate, Democrats hold a slight majority, but projections suggest Republicans may flip control.
What Do Investors Want?
Historically, investors have preferred a split Congress, as it has led to superior stock market performance—averaging a 17% return for the S&P 500. A divided government often fosters a more stable economic environment. But why does Wall Street favor gridlock?
The Case for Gridlock
Many investors believe that significant legislative changes can create uncertainty, which is detrimental to the market. A single party in control might impose sweeping regulations or raise corporate taxes, negatively impacting stock valuations.
In contrast, when Congress is divided, lawmakers are often compelled to take action only when inaction would be more politically damaging.
For instance, even under a split Congress, there is a belief that lawmakers will address financial issues related to Social Security. Historically, Congress has avoided government shutdowns, with only three occurring since 2013.