Source: Finance Federation Author: Huang Junzhi
① UBS said that in the months before the US election, the stock market may become more volatile; ② the subsequent reaction of US stocks will also depend on which party controls Congress; ③ the victory of the Republican Party is the most positive for the market, even though Trump's trade policy is a headwind and an unfavorable factor.
The 2024 US election is getting closer. As Biden and Trump each won enough party representative votes in the primary elections this month, their respective parties' presidential nominations were locked in. The “oldest general election rematch” after a lapse of four years has also begun.
In light of this, UBS (UBS) said in a recently released report that market fluctuations will inevitably increase in the months leading up to the November election.
“The policies promulgated by the two presidential candidates are very different, and this will have a significant impact on the market. Although it is our duty to remind investors that portfolio building is best viewed as an apolitical activity, the next 8 months may require 'some distraction'.” The line wrote.
However, UBS added that the reaction of the US stock market depends not only on which candidate will win, but also on whether their party can control Congress. No matter how ambitious their political platforms are, Biden and Trump cannot fully implement their own agendas without congressional support.
As a result, the bank deduced the following four possible scenarios:
1. Blue sweep
The bank predicts that a complete takeover of US politics by the Democratic Party may be bad news for US stocks, because it means that the possibility of raising corporate taxes is higher.
In the US media, red is usually used to represent the Republican Party and blue to represent the Democratic Party.
According to the 2025 budget proposal recently announced by the Biden administration, the corporate tax rate will be raised to 28%, while also proposing a minimum income tax on billionaires.
“The expiration of some individual tax cuts in 2017 (tax reforms implemented by the Trump administration) may also cause a slight drag on consumer spending,” UBS added. “Regulatory pressure in some industries may increase, but this is generally more like a continuation of the status quo.”
2. Biden wins, Congress splits
Since this situation is most similar to the current situation, UBS sees little impact on the market. Meanwhile, Biden's proposed reforms will be difficult to pass in Congress, forcing him to rely more on executive orders and regulatory oversight.
3. Red sweep
Under the Republican-led administration, the 2017 tax cuts are likely to be extended and corporate tax rates may be lowered further. As a result, green energy provisions under Biden's “Inflation Reduction Act” (Inflation Reduction Act) may be drastically cut.
While falling taxes and regulations will boost the stock market, Trump's trade policies may dampen market gains.
The former president once boasted that if he came to power, he would levy a general tariff of at least 10% on all imported goods. This means that inflation will rebound, which will cause investors some concern.
4. Trump wins, Congress splits
As Republicans may not be able to successfully push for tax and fiscal reforms through Congress, financial markets will not enjoy that much momentum, although regulations will still be looser than during the Biden era.
UBS said that even without congressional support, Trump is still free to levy tariffs, which raises risks similar to the third situation.
edit/lambor