The U.S. presidential election draws near, and investors are on high alert as the outcomes of Kamala Harris’s and Donald Trump’s contrasting economic policies could have significant ramifications for the financial markets.
With key decisions looming around tax rates, regulation, energy policy, and trade, the potential for market volatility increases depending on who gets into the White House and what the new balance of power in the U.S. Congress will be.
In this article, Octa Broker’s financial analyst, Kar Yong Ang, breaks down the candidates’ divergent economic visions and outlines possible scenarios for market reactions post-election, offering critical insights for traders to navigate the uncertain financial landscape ahead.
With less than a week to go until the U.S. presidential election, investors and traders are bracing for the potential impact on the financial markets. Although both candidates (Kamala Harris and Donald Trump) proclaim to pursue similar goals–––notably, creating jobs and boosting the U.S. manufacturing base–––they offer very different approaches to economic policy.
Therefore, financial markets will almost certainly respond differently depending on who ultimately gets into the White House. Furthermore, it is important to factor in the possible changes in the arrangement of power on Capitol Hill, as 33 out of 100 senators and all 435 delegates in the House of Representatives will also seek re-election this November.
At Octa Broker, we decided to offer our view about what to expect from the upcoming elections and what could be the possible impact on the financial markets in general and on gold and the U.S. dollar in particular. Before we lay out the possible scenarios, let’s first briefly recap the economic policy visions of Vice President Kamala Harris, the Democratic Party candidate, and of former President Donald Trump, the Republican Party nominee, and underline their key differences. Please note that this article will focus specifically on the candidates’ economic policies that are expected to have the most impact on the financial markets and affect an average trader. Thus, the general focus is on tax policy, regulation, energy policy, foreign policy, and tariffs. The article will not delve into the details of other policies, such as abortion rights, immigration, housing, and healthcare policy.
Table 1: Comparing the Candidates
Policy / Candidate | Kamala Harris | Donald Trump |
Tax policy | Harris generally favours higher taxes, especially on the wealthy. She supported the proposal to increase the top income tax rate to 39.6% (from 37%) and introduce a new 25% minimum tax on high-net-worth individuals with fortunes exceeding $100 million, including on unrealized capital gains. She has also proposed raising the capital gains tax to 28% (from 20%) and increasing the corporate tax rate to 28%. | Tax cuts are the cornerstone of Donald Trump’s economic platform. He mostly supports lowering the taxes for ideological reasons but also sees them as a way to encourage manufacturing companies to keep their base inside the country and not outsource production elsewhere. He has promised to reduce the corporate tax rate to 15% (from 21%) for companies that produce in the United States. Trump also wants to extend all the individual tax cuts that were implemented in 2017 but are projected to expire in 2025. |
Regulation | Harris is not a pioneer of deregulation. She desires more rigorous oversight of the banking industry and is likely to support new capital requirements for large banks. Additionally, Harris has pledged to implement the ‘first-ever ban on price gouging on food and groceries’. Although Harris launched her political career in Silicon Valley, she is now calling for regulations to address the dangers of Artificial Intelligence (AI) and enhance data privacy rules. She seems to be in favour of creating a federal approach to AI governance. | For ideological reasons, Trump believes in less regulation and wants to cut red tape in the AI and crypto sphere. Republicans generally vow to defend Americans’ rights to mine Bitcoin (BTC) and manage their digital assets independently. Additionally, they promise freedom from government surveillance and control of digital transactions. They also plan to overturn President Biden’s executive order on AI, which they believe hinders innovation. |
Energy policy | Harris is viewed as a staunch supporter of clean and renewable energy. She previously advocated for a ‘climate pollution fee’ and proposed the elimination of federal subsidies for fossil fuels. However, she has repeatedly stated that she does not support banning hydraulic fracturing and continues to back oil and gas extraction. | Trump has promised to help the oil and gas industry by approving new pipelines and allowing fracking on federal land again. Trump is generally not a big fan of renewables and said he would consider ending tax credits for electric vehicle purchases. |
Foreign policy | Harris aligns closely with the current president Joe Biden. She says that the United States will back Ukraine for ‘as long as it takes’ and calls for a two-state solution to the Israeli-Palestinian conflict. Harris supports military cooperation within NATO and would prefer to cooperate with China on key international challenges. | Trump maintains a somewhat bellicose approach towards China. He regards it as a strategic competitor and would like to reduce the United States’ large bilateral trade deficit with the country. Trump is a staunch supporter of Israel and has adopted a hostile attitude towards Iran. He wants to broker a peace deal between Russia and Ukraine and is highly unlikely to continue providing military aid to Ukraine. |
Trade | Harris says trade pacts should include provisions protecting American workers and the environment. She is not a fan of new tariffs but suggests that the United States should reduce its reliance on trade with China. | Trump is leaning towards protectionism. He has explicitly promised to ‘stop outsourcing and turn the United States into a manufacturing superpower’. He has outlined plans for broad tariffs of 10% to 20% on nearly all imports and tariffs of 60% or more on goods originating from China. Trump has openly said that he will renegotiate the North American free trade deal. |
‘When you wake up on 6 November to check the results of the U.S. presidential elections, there are two things to keep in mind’, argues Kar Yong Ang, a financial market analyst at Octa Broker. ‘Firstly, it is vital to realise just how decisive the victory of either of the candidates is. Secondly, it is very important to ascertain the new composition of the Legislative Branch’. Indeed, if either Harris or Trump wins the national popular vote with only a slim majority or the Electoral College produces mixed and uncertain results, the investors may get nervous, and market volatility will rise. ‘Contesting results are not good for the markets, as they may trigger disputes among the parties and delay important economic decisions in the best-case scenario and lead to social unrest and violence in the worst case’, Karr says.
The composition of the House and the Senate is equally important as they will largely determine the ultimate balance of power and the direction of the legislation. According to ABC News simulation, Republicans win control of the Senate 88 times out of 1001, meaning that it is highly unlikely that the Democratic Party can manage to take out the upper chamber of the U.S. Congress. When it comes to the House of Representatives, however, the chances are 50/502. Thus, it seems reasonable to infer that only four potential scenarios exist in this election (see the table below).
Table 2: Possible Scenarios and the Dollar Impact
Scenarios | Presidency | Senate | House | Dollar Impact |
1 | Harris | Republicans | Republicans | Highly negative |
2 | Harris | Republicans | Democrats | Slightly negative |
3 | Trump | Republicans | Republicans | Highly positive |
4 | Trump | Republicans | Democrats | Slightly positive |
Scenarios 1 and 2
Scenarios 1 and 2 assume that Kamala Harris becomes the next President of the United States, but her executive power is severely or partly limited. In case Republicans capture both the House and the Senate, Harris’s policy initiatives will be blocked or substantially amended. On balance, a Harris presidency facing a hostile Congress would bring about a politically unstable and unpredictable environment, which investors despise. As a result, the economy will underperform, stocks will decline, and the dollar will weaken.
‘A government paralysed by dysfunction and gridlock is the worst-case scenario for the U.S. economy in general and for the U.S. dollar in particular’, says Kar Yong Ang, a financial market analyst at Octa Broker. ‘The probability of a protracted government shutdown is very high under this scenario. U.S. stock market indices will certainly take a hit’.
Indeed, Harris’s progressive initiatives on climate and the environment will be blocked, while fiscal and economic policy will become a key point of contention, leading to a major standoff over the budget. At the same time, Harris’s presidency might result in less government spending, which will have a disinflationary impact, enabling the Federal Reserve (Fed) to continue reducing interest rates. That, too, however, will have a long-term bearish impact on the U.S. dollar.
In turn, the greenback’s weakness may have a bullish impact on commodities, especially gold, as it will become more affordable for holders of other currencies. Another bullish factor for commodities in general and for gold, in particular, is that the conflict in Eastern Europe will likely drag on under Harris, given that she has been more in favour of supplying the weapons rather than pushing for a peace deal.
‘All in all, I think Harris’s presidency will be met with a bearish reaction in U.S. equity markets–––especially in the energy sector. Companies focusing on renewables may perform better but still suffer in the long term as Harris will struggle to push her environmental agenda. The U.S. dollar will almost certainly sell off, while the euro and Chinese yuan will strengthen’, concludes Kar Yong Ang.
Scenarios 3 and 4
Scenarios 3 and 4 assume that Donald Trump becomes the next President of the United States, but his executive power will either be partly limited by the Democratic House or, alternatively, he manages to achieve a sweeping victory with the Republican Party taking full control over both chambers of Congress. In this case, investors will likely cheer (at least in the short term), as Trump promises to cut red tape and reduce taxes. Stock indices will rally, and the dollar may strengthen. Still, there will be long-term risks associated with Trump’s trade policy.
‘The fears over U.S. debt sustainability will certainly rise under Trump’, says Kar Yong Ang, a financial market analyst at Octa Broker. ‘He will extend as well as enlarge the tax cuts, essentially bringing about a loose fiscal policy, which, in turn, will force the Fed to be hawkish’. Indeed, a Republican sweep victory is the most bullish scenario for the greenback in the midterm. Inflationary tax cuts will boost the economy and may potentially force the Fed to stop its rate-cutting campaign, which will support the U.S. dollar vs other currencies. However, the U.S.’s gigantic deficit will likely keep expanding. Reuters estimates that Donald Trump’s tax cut plans would add some $3.6 trillion to $6.6 trillion to federal deficits over a decade3.
On the one hand, tax cuts may serve as a catalyst for U.S. economic growth, which should support oil prices, especially given that Trump is likely to enforce stricter sanctions against Iran. On the other hand, U.S. crude oil and natural gas output may rise as the Trump administration will likely support the companies engaged in fossil fuel production.
Trade policy is not expected to be Trump’s top priority, but he may still introduce new tariffs in 2025-2026. First and foremost, this will negatively affect China and its currency, the yuan. At the same time, Trump’s victory will be a major bullish factor for the crypto industry in general and for digital currencies in particular. He made no secret of his support for crypto and even advocated for the establishment of a national Bitcoin reserve.
‘All in all, I think Trump’s presidency will be met with a bullish reaction in U.S. equity markets–––especially in the energy sector, and especially in case of a sweeping victory. Companies with a focus on renewables will underperform, bitcoin will rally, while the euro and the Chinese yuan will fall. However, the market has already partly priced in Trump’s victory. Therefore, in a classic ‘buy the rumour, sell the news’ scenario, the asset prices I just mentioned may actually drop immediately after the election, but will likely remain supported in 2025’, concludes Kar Yong Ang.
