Our four most likely election outcomes

Pie chart with 4 slices.
Explore what they could mean for your portfolio
There are four other possible outcomes, based on the results of presidential, Senate, and House elections. For now, we view them as unlikely and discount them for the purposes of this exercise.
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Election scenarios and probabilities

Significant market implications emerge from the stark contrast between the presidential candidates’ policies. While we believe portfolio construction should be an apolitical process no matter how distracting the lead-up to Election Day may be, here are our policy, economic, and market expectations for the most likely outcomes.

Blue sweep

Scenario analysis

Harris with a Democratic Senate and House

A Democratic sweep would likely be the most negative outcome for equity markets, primarily due to a higher probability of higher corporate tax rates. The expiration of some 2017 personal tax cuts could also be a small drag on consumer spending. Regulatory scrutiny could increase in some areas, but this would represent an extension of existing policy. The impact would be limited by recent Supreme Court decisions.

Policies

  • Marginal tax rate reverts to higher level for individuals in top brackets
  • Capital gains taxes increase for higher earners
  • Estate tax threshold reverts to lower level (higher estate tax)
  • State and local tax (SALT) deduction limitation rises
  • Corporate tax increase contemplated
  • Regulatory oversight is emphasized
  • Strict scrutiny of mergers and acquisitions (M&A) for antitrust violations
  • Inflation Reduction Act (IRA) spending plans and incentives remain in place
  • Existing tariffs persist, but foreign policy emphasizes strategic alliances and sanctions
  • Macro impact

    Overall economic impact likely to be smaller than Biden’s term. Taxes on higher-income households likely increase. Modest negative for economic growth. Disinflationary impact, leading to somewhat larger Fed rate cuts. Slightly negative for the USD.

  • Rates impact

    Interest rates likely to decline, led by the front end of the yield curve. The curve normalizes and returns to being upward-sloping given lower inflation and growth and larger Fed cuts.

  • Equity impact

    Slightly negative impact on equity market due to possible increase in corporate tax rates and potential for greater regulatory oversight. Positive for select companies within industrials, materials, and utilities focused on renewables and energy efficiency. Worst-case scenario for financial services and somewhat of a negative for the fossil fuel energy industry.

  • Energy

    Somewhat negative for the fossil fuel energy industry. Greater regulation could lead to higher costs for producers and higher prices for consumers. Curbs on oil and gas drilling activity are possible, but the Supreme Court’s decision in Loper Bright (Chevron deference) could curtail the level of agency activism. Risks to M&A activity could increase. Positive for the renewable energy industry.

  • Financials

    Worst-case scenario for financial services. Enactment of the Credit Card Competition Act would be more likely. New regulations and more stringent interpretation of existing regulations would likely continue to drive up costs. Critical rhetoric and headline risk could discourage or delay industry consolidation.

  • Industrials

    Greater congressional and regulatory oversight of aerospace and freight rail, but major legislation unlikely. IRA beneficiaries could experience a relief rally. Potential for more stringent pollution-related regulations on industrials, chemicals, and mining.

  • Technology

    Continued support for domestic semiconductor manufacturing.

  • Healthcare

    Regulatory oversight on managed care and continued antitrust scrutiny. Perhaps some effort to expand IRA drug price negotiating powers, although likely limits on how far Democratic senators in key biopharma employer states will go.

  • Consumer

    Possible further minimum wage increases, increasing ease of union organization and support for unions, likely negatively impacting restaurants and parts of retail.

  • Communication services

    A clean sweep increases the potential for legislative action related to Section 230 safe-harbor provisions (limits liability for internet service providers, but still allows them to moderate content). This is a potential risk for roughly 65% of sector market cap.

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