Election overview
What are the key dates in the US election?
The first priority for any presidential hopeful is to secure their party’s nomination. In the first half of the year, the presidential primary elections and caucuses take place, with voters in each state choosing who they want to select as the party nominee. Following these elections, the winners are formally appointed at the parties’ respective national conventions in the summer.
Former President Trump was confirmed as the Republican nominee at the Republican National Convention in July. For the Democrats, President Biden withdrew from the race on 21 July and Vice-President Harris has since been certified as the official Democrat nominee, ahead of the Democratic Convention that will take place from 19-22 August. The conventions mark the end of the primary phase of the race, with the general election campaign ramping up before voters head to the polls on Election Day in November. Many states have expanded opportunities for early voting, which will allow many voters to begin casting ballots in October. The winner is then inaugurated the following January.
What will be voted on in November?
The race for the White House is the main focus, but a president’s ability to achieve their policy goals is influenced by who controls Congress
American voters will be asked to make three key decisions on 5 November: who they want to elect as President, and who they want to serve in the Senate and the House of Representatives (the House).
The President
The presidential candidate that wins the greatest number of votes (or wins “the popular vote”) does not automatically become president. Instead, the US employs an electoral college system. Votes are tallied at the state level, and the winner earns the “electoral votes” that belong to that state (with the number of electoral votes in each state determined by population size). A candidate needs to win at least 270 of the total 538 electoral votes to win the presidency.
The Senate
The Senate is one of the two arms of Congress that form the legislative branch of government. Despite some nuances between the Senate and House, they have similar functions and must both sign off on new legislation. However, the Senate has unique authority in some areas, such as the confirmation of presidential appointees.
One of the main differences between the Senate and the House is who they represent. Each state appoints two Senators to represent the entire state. US Senators serve six-year terms, which means that roughly a third of the 100 Senate seats are up for grabs at each federal or mid-term election. Currently the Democrats control the Senate. There are 34 seats up for election this year, 23 of which are held by Democrats or Independents. To win control of the Senate, the Republicans would need to keep all of their existing seats and flip one seat if they win the presidency, or two if they do not, as the Vice President casts tie-breaking votes.
The House of Representatives
The House of Representatives is the other arm of Congress. Members of the House represent individual districts within a state and serve two-year terms. They are generally expected to be more responsive to their constituents than Senators given they represent fewer people and serve shorter terms. Each of the 435 seats in the House are up for election in November. Currently the Republicans control the House. For the Democrats to win back control, they would currently need to win six additional seats.
If a president’s party also controls both arms of Congress, the president can typically push through an agenda more easily, particularly on areas of domestic policy that require Congressional support, such as spending and taxes. In a divided government scenario, the president would be limited in what they could achieve, forcing a greater reliance on executive actions and potentially a focus on areas where the president has more discretionary authority, particularly foreign policy.
Votes or seats in the Electoral College, Senate and House of Representatives
While there is a host of potential outcomes from this year’s elections, prediction markets in mid-August show that some seem more likely than others. The retirement of Democratic Senator Joe Manchin, in a heavily Republican state, means that the Democrats will face an uphill battle to retain the Senate. Based on prediction markets as of mid-August, control of the House is more likely to swing Democrat. Taken together, prediction markets therefore imply that a divided government is currently the most likely outcome.
How should investors interpret the US election polls?
While national polls are useful to track momentum, polls of swing states warrant close attention
Following several surprise outcomes around the world, the reliability of election polls has been increasingly called into question in recent years. The 2020 US presidential election is a good example, where the polling industry delivered one of the biggest misses in 40 years. Joe Biden was expected, on average, to win the popular vote with an 8.4 point margin, but delivered only half of this. Meanwhile in 2016, the polls incorrectly predicted a win for Hillary Clinton. While she won the popular vote (as predicted by the polls) with 48.2% of the vote vs. Donald Trump’s 46.1% share, the polling data over-estimated the margin of victory and Trump ultimately emerged victorious by winning more electoral votes. The polling industry has since implemented a number of innovations to bolster the accuracy of its data, including using a variety of survey methods to paint a more realistic picture of the electorate. This paid off in the 2022 mid-terms, where the average polling error was the lowest since at least 1998. However, we note that for the past two presidential elections, where Trump was on the ballot, polls typically underestimated the extent of his support. Trump’s recent criminal conviction and the assassination attempt against him adds another layer of uncertainty.
Given the difficultly in predicting the outcome at the national level, it may be more instructive to focus on regional polls for the “swing states” – the states likely to have the tightest races. In 2020, just over 40,000 votes in key three states – Georgia, Arizona and Wisconsin – separated Biden and Trump from a tie in the Electoral College. We will be watching the regional polls in these three states – as well as other key states including, Michigan, Nevada and Pennsylvania – extremely closely. Polling in mid-August shows that since Harris has stepped into the race, the Republican lead in the swing states has narrowed. But as with polling data for any political event, an appropriate margin for error must be factored into any analysis.
Presidential election polls in the swing states
%, 270towin polling average
How will the Democrats and Republicans likely differ on policy?
While there are areas of alignment between the two parties, the Republican Party may take a tougher stance on tariffs and immigration
Where do the parties stand on tariffs?
In recent years, both parties have shown a commitment to protect domestic manufacturing and grow the strategic rivalry with China. The current Democrat administration recently announced increased tariffs on $18 billion worth of Chinese imports. While the decision created a number of headlines, the near-term economic impact of these targeted measures is expected to be minimal given the tariffs only affect 4% of total US imports from China, and the products which saw the largest increases, namely EVs, are primarily imported from elsewhere. Trump, meanwhile, has suggested that if he were to be elected, he would implement a broad 60% tariff on all Chinese goods entering the United States, and an across-the-board levy of 10% on products from the rest of the world. While a boost to US competitiveness may appeal to many, it could also come at a cost to American consumers. Bloomberg estimates suggest that Trump’s proposed plans would leave consumer prices 2.5% higher and GDP 0.5% lower after two years. The economic impact could be greater if tariffs result in a tit-for-tat retaliation with its key trading partners. Regardless of who wins the election, it seems that a more aggressive protectionist stance is likely to be adopted.
Where do the parties stand on fiscal policy?
Limited fiscal headroom should, in theory, weigh on any ambitions for either party to deliver further tax cuts or major spending programmes. With the US fiscal deficit already exceeding 6% of GDP at a time of record low unemployment, closing the deficit would typically be a top policy priority. This does not appear to be the case, however, based on recent commentary from both the Democratic and Republican camps.
Trump has vowed to extend the tax cuts he implemented in the 2017 Tax Cuts and Jobs Act (TCJA), and has hinted at further unspecified tax cuts. The latest forecasts from the Congressional Budget Office (CBO) suggest that the fiscal deficit in the US could increase to 7% of GDP in 2034, while debt could reach 122% of GDP. Crucially, these forecasts assume that provisions in the TCJA will expire at the end of 2025. Assuming that this is not the case - and the TCJA tax cuts are extended – the deficit could hit over 8% of GDP, and debt to GDP could reach 134%, even without further expansionary fiscal measures. Trump aims to fund tax cuts partly via the revenues raised from implementing tariffs. Whether or not this will prove to be the case remains highly uncertain depending on how consumers respond.
To date, the Democrats have proposed extending the TCJA provisions for those earning less than $400,000 but reinstating the previous, higher rates for those earning above this limit. They have also indicated that they plan to increase the corporation tax rate from 21% to 28%. The Democrats have hinted at expanding tax credits elsewhere, including the child tax credit which was in place in 2021, and Obamacare premium subsidies, which are also due to expire at the end of next year.
Under either outcome, deficits are likely to widen, primarily due to rising interest costs, and discretionary spending is likely to be cut, creating a modest headwind for growth and some upside risk for yields. As we have seen with the recent volatility in the bond market, as the election approaches, investors are likely to view the election result through the lens of each party’s commitment to fiscal prudence.
Composition of the US federal deficit
% of GDP
US federal debt
% of GDP
Where do the parties stand on immigration?
Immigration policy will be a key focus for both parties. Immigration has surged in recent years, with CBO estimates suggesting that immigration added 3.3 million people to the US population last year, over three times the yearly average in the prior decade. Immigration has helped boost labour supply and pushed wage growth down from its 7% peak in March 2022 to around 4% in recent months. Many Americans consider immigration to be one of the most important issues facing their country, though these polling numbers are higher among Republican voters and some independents. As a result, Republicans and more centrist Democrats may take a tougher line on immigration to appease voter concerns.
Americans’ views on the most important issue in US
% of respondents
Where do the parties stand on climate policy and regulation?
Key areas in which the two parties are likely to differ include climate action and regulation. Climate is expected to remain a key area of focus for the Democrats. The Republicans, meanwhile, have vowed to accelerate the production of fossil fuels and roll back some of Biden’s green policies. In practice, even under a Republican sweep, a full unwinding of Biden’s Inflation Reduction Act and CHIPS Act seems unlikely; Republican counties have been the beneficiaries of the majority of this spending and it could therefore prove unpopular to do so. Nonetheless, if elected, Trump would likely relax the regulatory environment for oil and gas development as well as reversing limits on greenhouse gas emissions.
Elsewhere in the regulatory landscape, the two parties differ on antitrust enforcement. While the Democrats have taken a more aggressive stance on this under the current administration, the Republicans could be more lenient. That said, it is likely a Republican administration would continue to pursue cases which are still pending in the tech sector.
What are the parties’ geopolitical views?
On geopolitics, the Democrats are expected to continue their military support for both Ukraine and Israel, seeing it as vital for US national security interests. It is less likely that support for Ukraine would continue under a Republican president, although foreign policy views do differ across the party. The eventual nominee for the Republican party could therefore have implications for US relations with Europe, as well as geopolitical relations globally.
What are the implications for investors?
What is happening in the economy tends to be much more important for markets than what is happening in the White House.
Despite the fact that there are some clear policy differences between the two parties, we would urge extreme caution for investors planning to position portfolios around an assumed result.
First, as the old adage goes, a week is a long time in politics. We are still some way off from November’s election; a lot could change and the outcome remains very uncertain.
Second, even if an investor felt certain of the result today, what politicians say they will do in an election campaign and what they eventually can enact are often quite different. Over the last four US elections the successful candidates made a combined 700 campaign promises, but less than half of these have made it into law, in large part due to congressional opposition. If the election results in a divided congress, the winning party could rely on unilateral action, such as executive orders and rulemaking via the federal department and agencies, but enacting larger policy proposals ultimately requires approval by Congress.
Finally, even if an investor felt confident about both the election outcome and the future direction of policy, there will be many other factors driving markets.
History suggests that equity markets tend to see lower average returns and higher volatility in election years vs. non-election years. Yet it is crucial to recognise that these averages are skewed by events that have happened to coincide with an election, notably the bursting of the dot-com bubble, the global financial crisis and the Covid-19 pandemic. What is happening in the economy tends to be much more important for markets than what is happening in the White House.
US equities price return
% change year on year
US equities realised volatility
%, 52-week standard deviation
Special webcast
President Biden’s withdrawal as the Democratic nominee has added a new layer of drama to an already dramatic election campaign. Join Dr. David Kelly, Chief Global Strategist, as he discussed the implications - both political and economic - with Elizabeth Herman, Federal Government Relations Director.
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