Election overview
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What are the key dates in the US election?
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What will be voted on in November?
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How should investors interpret the US election polls?
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How will the Democrats and Republicans likely differ on policy?
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How could the election result impact the Inflation Reduction Act?
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What are the implications for investors?
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 accepted her party’s nomination at the Democratic National Convention in August. The conventions marked the end of the primary phase of the race, with the general election campaign now ramping up ahead of Election Day. On 10 September we saw the first Presidential debate between Trump and Harris, and on 1 October the Vice-Presidential debate took place. Many states have expanded opportunities for early voting, which will allow many voters to begin casting ballots in October, ahead of the official Election Day on 5 November. 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. Implementation of tariffs and more stringent immigration measures could be pursued via unilateral action, although the latter could be challenged by the courts.
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 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 in early October, 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, but a lot could still change.
Market-implied probabilities for the 2024 presidential election winner
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Market-implied probabilities for control of Congress
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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 several 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 criminal conviction and the assassination attempts 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 three key 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, North Carolina and Pennsylvania – extremely closely. As of early October, the polls are exceptionally tight in these swing states, with just 1-2 % points separating Trump and Harris.
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. In May, the current Democrat administration 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 between 10% and 20% 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 near 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 Republican and Democratic camps.
Trump has vowed to extend the tax cuts he implemented in the 2017 Tax Cuts and Jobs Act (TCJA). 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 the temporary provisions in the TCJA 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%. In addition to the extension of the TCJA tax cuts, Trump has also floated the prospect of eliminating taxes on tips and Social Security Income, as well as another potential cut to corporation tax from 21% to 15%. Estimates from the Penn Wharton Budget Model suggest that Trump’s proposed policies would in total add $5.8 trillion to the primary deficit over the next decade. 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.
Harris has pledged to follow Biden’s position on extending the TCJA provisions for those earning less than $400,000 but reinstating the previous, higher rates for those earning above this limit. Elsewhere, she plans to expand tax credits, including child tax credits, earned income tax credits for those without children, and Obamacare premium subsidies, which are also due to expire at the end of next year. There are plans to provide cheaper childcare alongside higher wages for care workers. She has also pledged to provide downpayment support for first-time buyers. A planned increase in corporation tax from 21% to 28% alongside taxes on the wealthy should partially offset the cost of tax cutting measures. Estimates from the Penn Wharton Budget Model suggest that Harris’ proposed measures to date would expand the primary deficit by $1.2 trillion over the next decade.
Trump: 10-year budget balance effect of proposed policies
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Harris: 10-year budget balance effect of proposed policies
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How might the election result impact 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, with polling numbers higher among Republican voters and some independents. As a result, Republicans would likely take a tougher approach on the matter. Trump has suggested he would restore his ‘remain in Mexico’ program and conduct large scale deportations. Legal experts are divided on whether mass deportations would be allowed by the courts but, even so, the president has broad authority to limit immigration. The Democrats too have vowed to take a tougher stance on immigration. At the Democratic National Convention, Harris pledged to bring back the bipartisan border security bill that was negotiated earlier this year that allocated $20 billion to new security measures at the southern border and imposed restrictions on asylum seekers and immigrants more broadly.
Americans’ views on the most important issue in US
% of respondents
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.
How could the election result impact the Inflation Reduction Act?
A full unwind of the Inflation Reduction Act is unlikely regardless of the election outcome, but electric vehicles and wind power are two industries where policy could be most impacted
The US Inflation Reduction Act (IRA) was signed into law just over two years ago, in August 2022. Since then, USD 500 billion in domestic, utility-scale clean energy investments has been announced, including 334 new clean energy and clean vehicle projects and more than 300 gigawatts of new clean power. For investors, any changes to the IRA will be important to track given the potential impact to corporate earnings of those companies with exposure to sectors influenced by the IRA.
Regardless of the election outcome, it appears unlikely that the IRA will be fully unwound under the next administration. If the Democrats win the White House, we expect little to no change to the IRA. A Harris presidency would likely continue to focus on effective implementation of the law, via measures such as clean energy “tech-neutral” tax credits that streamline the existing range of technology-specific tax credits.
While the IRA was unanimously opposed by Republicans in Congress, a future Republican administration would need to balance any desire to repeal the law against the investment flow and job creation to Republican districts. As of August 2024, 60% of the announced projects and 71% of the estimated job growth are in Republican congressional districts, according to analysis from JPMAM’s Sustainable Investing team. Technically, the full repeal of the act would require an act of Congress, which implies this would only be possible under a “red sweep” scenario. It is also important to note that not all of the IRA relates to clean energy, with other provisions focusing on areas such as corporate tax provisions and Medicare drug reimbursements.
While a full unwind of the IRA is not our base case, there are elements of the legislation that could be subject to change in the event of a Republican victory. In his speech at the Republican National Convention in July, Trump vowed to “end the electric vehicle mandate on day one”, referring to new regulations on vehicle pollution that will likely encourage automakers to sell more electric vehicles over time. We infer that electric vehicle tax credits in the IRA could therefore also be at risk, which would be particularly impactful for producers of more expensive electric vehicles. Offshore wind power is another area of focus. The IRA extended and increased tax credits for wind power, although Trump has committed to halting offshore wind energy projects by executive order at the start of a second term. Conversely, the onshoring of battery manufacturing is one associated area that receives bipartisan support, although eligibility rules related to the foreign content of critical mineral and battery components may also be subject to change. The IRA’s impact on battery manufacturing cost is significant, with tax credits decreasing costs by an estimated 34% – a figure which makes US-based manufacturing highly competitive with manufacturing in China.
In sum, even if a full repeal of the IRA appears unlikely, a Republican victory would likely increase policy uncertainty around clean energy provisions and move investors and project developers to take on more conservative project timelines. Electric vehicles and wind power are two policy areas that could potentially see the most change. Regardless of political leadership, investors must also keep in mind that the energy transition is a global, secular influence on business strategies, with global investment in the energy transition hitting an all-time high of USD 1.8 trillion in 2023.
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; 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
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US equities realised volatility
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