How the Outcome of the Presidential Election Could Affect Your Stock Portfolio

U.S. voters went to the polls Tuesday in what’s expected to be one of the tightest presidential elections in recent memory.

Democratic Vice President Kamala Harris and former former President Donald Trump, the Republican candidate, have staked out vastly different positions on economic issues, including taxes, trade, and regulations, all of which could have implications for the stock market and your investments. 

Who Would Tariffs Hurt?

Trump’s tariffs, if implemented as aggressively as he’s promised, would likely hit the bottom lines of importing companies, which is most U.S. firms, according to LPL Financial analysts Jeffrey Buchbinder and Adam Turnquist. Higher tariffs would also likely hurt sales for companies with substantial business outside the U.S., especially in China if it were to retaliate.

“This risk is broad,” Buchbinder and Turnquist wrote in a presentation Monday, “as both industrial and consumer goods companies could be affected.”

Harris has endorsed the targeted use of tariffs on certain Chinese goods to support U.S. manufacturing of green technology, an approach that would have a more muted effect on U.S. and international stocks. 

Who Benefits From Each Candidate’s Tax Plans?

Each candidate’s tax policies could also affect the market in the longer term. Many provisions of the Tax Cuts and Jobs Act (TCJA) of 2017, one key piece of legislation from Trump’s presidential term, are set to expire in 2025. Trump has vowed to extend the sunsetting provisions and to enact additional cuts for domestic production that could lower companies’ effective tax rate to less than the current 21%. 

“Lower tax rates could help boost small caps and domestic-oriented industries like healthcare services, real estate, and utilities,” Buchbinder and Turnquist wrote. 

Harris has supported higher taxes for the wealthy and businesses. Buchbinder and Turnquist estimate that corporate profits would “take a small hit, probably no more than a few percentage points,” if the tax rate were raised to 25% from 21%.

“Higher tax rates (and lower tariffs) could help multi-national, low-tax corporations that make up the industrials and technology sectors,” they said. The likelihood of Democrats increasing subsidies for low-income Americans could also support businesses in the consumer staples sector.

Tax policy requires the approval of Congress, so each candidate’s plans would be dependent on support from Congress, where majorities are expected to be narrow. 

The Questionable Impact of Regulation

Trump has vowed to curtail regulations in a second term. He has said he would increase presidential control over some regulatory agencies and roll back Biden administration policies. Banks and energy companies are expected to be the greatest beneficiaries of Trump’s regulatory agenda. 

However, Buchbinder and Turnquist note that energy stocks aren’t guaranteed to benefit from a lighter government touch. Trump would likely support more oil and gas production, which could weigh on prices and, subsequently, energy stocks. Whereas a more restrictive approach by a Harris administration could bolster oil and gas prices, giving a lift to energy profits and stocks. 

How the Election Could Affect Near-Term Returns

Ultimately, however, researchers broadly agree that election outcomes are less consequential for the stock market than the economic cycle. 

“Immediate post-election performance doesn’t reveal any discernible positive or negative response looking back at episodes since 2000,” according to a recent note from analysts at BMO Capital Markets Economic Research. The S&P 500 was higher 90 days after most of those elections, except for 2000, when markets were still reeling from the bursting of the Dotcom bubble, and 2008, when the Global Financial Crisis was in full swing. 

A Deutsche Bank Research analysis of those same elections and the market’s reaction to each circulated Monday suggests a similar takeaway: That macroeconomic conditions are as consequential for the market’s post-election performance as the election itself. 

However, 2000’s showdown between George W. Bush and Al Gore offers an illustrative example of how uncertainty about an election’s outcome can influence markets. It took more than a month of legal challenges before Gore conceded the race to Bush. With the outcome in question, the S&P 500 fell 8% in November 2000, its worst monthly performance of the year. Treasury yields steadily fell after Election Day as investors fled to the safety of U.S. Treasurys.