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Many investors are wondering how the market will react to the results of the 2024 Presidential Election. During previous open election years, the market’s discomfort with uncertainty has been on full display as equities exhibited heightened volatility in the final months leading up to the election. Given the disparate policy views of the two candidates and the current polling, which suggests a race that is too close to call, we should expect 2024 to be no different.
While the overall market tends to respond favorably once the uncertainty of the election is behind us, it's important to recognize that there will be different winners and losers depending on the outcome. After all, both sides have laid out widely different visions when it comes to major social and economic policies, and investors will be closely watching the election outcome to gauge how potential policy changes may impact the economy and outlook for corporate earnings.
One of the biggest issues facing investors is the partial expiration of the 2017 Tax Cuts and Jobs Act (TCJA) at the end of 2025. At a high level, former President Trump is looking to extend and possibly expand tax cuts by further reducing the corporate tax rate (from 21% to 15%) for businesses that make their products in America. Meanwhile, Vice President Harris has proposed extending tax cuts only for those earning less than $400,000 per year and raising the corporate tax rate to 28%.
Beyond the presidency
While the race for the White House is critical, congressional election results will be equally important in shaping future policy. Apart from trade and immigration (where the president enjoys considerable discretion), most policy changes require the support of Congress and often take time to negotiate. Given the possibility of a divided government, today’s campaign proposals merely represent a starting point for future negotiations. Even under the scenario of a unified government, changes would take time given what would likely be slim majorities in Congress.
For perspective, it took nearly all of former President Trump’s first year in office to craft and pass the Tax Cuts and Jobs Act in 2017, a time when Republicans also controlled the House and Senate. Policy decisions that impact government revenues and spending will be no easier this time around, given the nation’s current budget issues and a deficit that has reached roughly 7% of GDP.
