Donald Trump and Kamala Harris are currently locked in a very close race in the U.S. presidential election, with results expected to have a significant impact on the U.S. stock markets, especially once the 2024 election results are confirmed. At present, there is still no clear indication as to which candidate may have the upper hand, even though polling booths have already opened across several states.
U.S. markets reaction
As the final day of the election unfolds, both Trump and Harris face a decisive test in their pursuit of the White House. Some previous analyses have indicated that the U.S. stock markets could experience a marked response depending on the outcome of the 2024 election. In light of the prevailing atmosphere of uncertainty, there are even some concerns regarding the possibility of a stock market downturn under the current conditions.
Stock markets reaction to Trump victory
A sweeping victory by Trump in the election could lead to a rise in “Trump trades,” as many global investors are heavily invested in assets tied to his policies. With his proposed economic policies being largely expansionary, some analysts have speculated that a political stalemate involving Kamala Harris could ultimately present a negative scenario for the equity markets. Additionally, if Trump were to win with a divided Congress, the outcome might not be particularly encouraging for a considerable segment of the stock market.
Moreover, research indicates some notable exceptions. Typically, the immediate market response to elections does not favor either party. However, an unexpected Republican victory—one that defies predictions made by markets—often correlates with a 2-3 percent increase in returns around election time.
One possible explanation for this trend is that equity fund managers tend to lean Republican. When their preferred candidate wins unexpectedly, it can lead to a rise in stock prices following the announcement.
Stock markets reaction to Harris victory
On the other hand, if Kamala Harris and the Democratic Party secure a comprehensive victory, this could have immediate implications for the U.S. dollar, as well as potential adverse effects on the stock market, primarily due to anticipated increases in income taxes and more stringent financial regulations. According to reports, a complete Democratic sweep could heighten nervousness across global equity markets, potentially due to investor concerns about stricter regulatory frameworks and the impact of tax policy on corporate profits.
A Democratic win would signify a continuation rather than a shift from a Republican presidency, meaning there wouldn’t be the policy shifts that more cautious investors often prefer.
Secondly, this Democratic success would occur in the context of a thriving economy. Since the pandemic ended, the U.S. economy has shown considerable strength. For instance, in September, it added 254,000 jobs, marking the most significant job growth seen in six months. Additionally, the economy grew at an annualized rate of 3 percent during the second quarter of 2024, surpassing its decade-long average of below 2 percent.
Read More: Explained: How The US Election Could Impact Global Stock Markets
