The Delicate Balance: How Election Outcomes Could Impact the Stock Market

As the 2024 U.S. presidential election approaches, investors are closely watching the potential economic implications of the candidates' policy platforms. According to a recent analysis by Citigroup, the outcome of the election could have significant consequences for the stock market, with neither candidate's proposals being viewed as particularly favorable.

Navigating the Uncertain Terrain: Investors Brace for the Election's Impact

The Harris Platform: A Potential Drag on Equity Values

Citigroup strategist Scott Chronert suggests that Vice President Kamala Harris's policy proposals could have a more negative impact on the stock market compared to former President Donald Trump's platform. Chronert's analysis indicates that a "sweep" victory for Harris, where her party controls both the executive and legislative branches, could result in a 4% to 6% decline in U.S. equity values. This is primarily due to the direct implications of higher corporate tax rates under a Harris administration.In contrast, Chronert believes that a Trump victory, even with a "sweep" of Congress, would have a less severe impact, with a potential 0% to 4% decline in equity values. This is largely because Trump's focus has been more on using tariffs to raise government revenue, rather than directly targeting corporate tax rates.

The Importance of a Split Congress

Interestingly, Chronert notes that a split Congress, with either candidate in the White House, could mitigate much of the near-term risk to fair market values. This suggests that investors may be better off if the election results in a divided government, where the president's ability to enact their economic policies is limited.The fight for control of Congress is expected to be tight, with several key Senate races in states like Montana, Nevada, Arizona, and Pennsylvania seen as crucial battlegrounds. The outcome of these contests could have a significant impact on the balance of power in Washington and, consequently, the potential for sweeping economic policy changes.

The Looming Tax Cut Expiration

Another factor that could influence the market's reaction to the election is the impending expiration of the tax cuts enacted during Trump's first term. These cuts are scheduled to expire in 2025, and any changes to the tax environment could have far-reaching consequences for consumer spending, corporate earnings, and the federal deficit.Chronert warns that the deficit situation is likely to become a more prominent concern for investors in the post-election landscape. Both candidates' policy platforms are projected to add incrementally to the 10-year deficit projections, further underscoring the importance of the election's outcome for the long-term fiscal health of the United States.

The Tight Race and Uncertain Outcome

The 2024 presidential election is shaping up to be a close contest, with recent polling in swing states and nationwide suggesting a tight race between the two candidates. Election betting site Polymarket currently shows roughly 50-50 odds for each candidate, further highlighting the uncertainty surrounding the outcome.As investors navigate this complex and dynamic landscape, they will undoubtedly be closely monitoring the developments in the race and the potential implications for the stock market. The delicate balance between the candidates' policy proposals and the potential for a divided government will be a key factor in determining the market's reaction to the election's outcome.