US Politics and Policies Scenario analysis

Blue sweep

Marginal tax rate reverts to higher level for top brackets

Capital gains taxes increase for higher earners 

Estate tax threshold reverts to lower level (higher estate tax)

SALT tax deduction limitation rises

Corporate tax increase contemplated

Greater regulatory oversight persists and could increase in some areas

Strict scrutiny of mergers and acquisitions for antitrust violations

Inflation Reduction Act (IRA) spending plans and incentives remain in place

Existing tariffs remain in place, but foreign policy emphasizes strategic alliances and sanctions

Biden with split Congress

Marginal tax rate reverts to higher level for top brackets

No change to capital gains taxation

Estate tax compromise—threshold reduced but higher than full reversion

SALT tax deduction limitation rises modestly

No change to corporate tax rates

Greater regulatory oversight persists and could increase in some areas

Strict scrutiny of mergers and acquisitions for antitrust violations

IRA spending plans and incentives remain in place

Existing tariffs remain in place, but foreign policy emphasizes strategic alliances and sanctions

Red sweep

Lower marginal tax rates extended or made permanent

No change to capital gains taxation

Higher estate tax threshold extended or made permanent (lower estate tax)

SALT tax deduction limitation rises modestly

Corporate tax decrease contemplated

Regulatory oversight decreases, especially for energy and financials

Reduced scrunty of mergers and acquisitions; M&A activity increases

Partial rollback of specific IRA incentives possible

New tariffs implemented on selected imports. Universal tariffs possible. China targeted for higher tariffs

Trump with split Congress

Marginal tax rate reverts to higher level for top brackets

No change to capital gains taxation

Estate tax compromise—threshold reduced but higher than full reversion

SALT tax deduction limitation rises modestly

No change to corporate tax rates

Regulatory oversight decreases, especially for energy and financials

Reduced scrunty of mergers and acquisitions; M&A activity increases

IRA incentives and spending plans remain in place

New tariffs implemented on selected imports. Universal tariffs possible. China targeted for higher tariffs

Blue sweep

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

Biden with split Congress

Smaller impact than the blue sweep scenario. Taxes on higher-income households could rise, but by less than in a blue sweep scenario. No corporate tax hikes, but more stringent regulatory oversight. Relatively neutral for growth, inflation, Fed policy, and the USD.

Red sweep

Overall economic impact should be positive, but inflationary pressure increases, resulting in fewer Fed rate cuts. Positive for the USD at least initially, but higher deficits and trade tensions could later undermine the dollar.

Trump with split Congress

Overall economic impact should be positive but less than in red sweep scenario. Tariffs still add to inflationary pressure, making it more difficult for Fed to cut rates aggressively. Positive for the USD at least initially, but higher deficits and trade tensions could later undermine the dollar.

Blue sweep

Interest rates 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.

Biden with split Congress

Range-bound interest rates. Move in interest rates will be due to the lagged impact of Fed policy during 2022–23.

Red sweep

Interest rates rise led by the back end of the yield curve due to inflationary pressures. Increased Treasury supply due to rising deficit also pushes longer-end yields higher. Heightened interest rate volatility due to geopolitical concerns ensue.

Trump with split Congress

Slightly higher interest rates in line with the stronger USD. Volatility rises due to geopolitical risk and ambiguity over the Fed reaction function.

Blue sweep

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.

Biden with split Congress

Similar to the status quo, so likely minimal impact on equity market. Positive for select companies within industrials, materials, and utilities focused on renewables and energy efficiency. Neutral to negative for the fossil fuel industry and the negative regulatory overhang on financial services would continue.

Red sweep

Slightly positive equity market impact. Less regulation, potential for more M&A, and possibly lower corporate tax rates would all be supportive, but a stronger USD, higher tariffs, and inflationary pressures would be headwinds. Most positive scenario for the fossil fuel energy and financial services industries. The consumer discretionary, industrials, and information technology sectors would most likely be negatively impacted by higher tariffs.

Trump with split Congress

Mixed equity market impact. Less regulation and potential for more M&A would be supportive, but a stronger USD, higher tariffs, and inflationary pressures would be headwinds. A likely easing in regulatory risks should benefit the fossil fuel energy and financial services industries. The consumer discretionary, industrials, and information technology sectors would most likely be negatively impacted by higher tariffs.

Blue sweep

Somewhat negative for the fossil fuel energy industry. Greater regulation could lead to higher costs for producers and higher prices for consumers. Possible curbs on oil and gas drilling activity. Risks to M&A activity could increase. Positive for the renewable energy industry.

Biden with split Congress

Neutral to negative for the fossil fuel energy industry, though roughly the status quo with ongoing aggressive regulatory oversight of the energy industry. Possible curbs on oil and gas drilling activity. M&A activity should continue but with ongoing regulatory risks. Neutral to positive for the renewable energy industry.

Red sweep

Most positive scenario for the fossil fuel energy industry. Regulatory and legislative risks decline. Industry would likely maintain lower emission investments (e.g., methane). Oil and natural gas investment could increase. Industry consolidation, more drilling activity, and higher exports of natural gas. Negative for the renewable energy industry.

Trump with split Congress

Somewhat positive for the fossil fuel energy industry as regulatory risks would likely decline. Industry would likely maintain lower emission investments (e.g., methane). Likely a clearer regulatory path toward the necessary investment for industry consolidation, increasing drilling activity and exports of natural gas.

Blue sweep

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.

Biden with split Congress

The regulatory pendulum, which has swung against the industry in recent years, would likely continue to be a negative overhang. Anti–big financial services company ideology would remain in place.

Red sweep

Best case scenario for financial services. A potentially more favorable (less punitive) political or regulatory environment could emerge that could lead to cost savings and greater ability to return capital to shareholders. Financial services industry consolidation could face less political or regulatory resistance. 

Trump with split Congress

The appointment of new regulatory heads at the Fed, FDIC, OCC, and SEC would likely be positive (personnel is policy). Although regulatory costs could ease somewhat, a Democrat-led House could hold anti–financial services hearings, which could be negative headline risks for the industry.

Blue sweep

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

Biden with split Congress

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

Red sweep

Less support for green energy initiatives could crimp investment spending in this area. Less onerous pollution regulation. A reimposition of tariffs could drive up US metals, supporting steelmakers but hurting heavy manufacturing. 

Trump with split Congress

Uncertainty around green energy initiatives could crimp investment spending in this area. Less onerous pollution regulation. A reimposition of tariffs could drive up US metals, supporting steelmakers but hurting heavy manufacturing. 

Blue sweep

Continued support for domestic semiconductor manufacturing

Biden with split Congress

Continued support for domestic semiconductor manufacturing

Red sweep

Continued support for domestic semiconductor manufacturing. Increased tariffs could have direct and indirect impacts on hardware and semiconductor companies, with negative implications for smartphone manufacturers. Additionally, blowback from China could be a headwind for non-domestic vendors and their suppliers.

Trump with split Congress

Continued support for domestic semiconductor manufacturing. Increased tariffs could have direct and indirect impacts on hardware and semiconductor companies, with negative implications for smartphone manufacturers. Additionally, blowback from China could be a headwind for non-domestic vendors and their suppliers.

Blue sweep

Assuming thin majorities in Congress, continued 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.

Biden with split Congress

Limited ability for Biden to push any legislation. Continued focus on increased regulatory and antitrust oversight, mainly impacting managed care and providers.

Red sweep

Most likely less regulatory oversight on healthcare. However, Trump's prior proposal for an international drug pricing index would be quite negative for biopharma. Lower antitrust oversight would enable more consolidation, which would be fueled by pressure on drug pricing.

Trump with split Congress

Most likely, limited bipartisan solutions. However, the potential for populist-driven bipartisan legislation could emerge, and drug pricing legislation could be one area of potential bipartisan agreement.

Blue sweep

Possible further minimum wage increases, increasing ease of union organization and support for unions. Impact to restaurants, parts of retail. 

Biden with split Congress

Limited change from status quo. Continued regulatory oversight but limited direct impact on consumer companies. 

Red sweep

Tariff risk. This would impact retailers. Most goods sold by US retailers are imported (apparel, footwear, sporting goods, small household appliances, electronics, etc.). China is still a major manufacturing hub for all these products.

Trump with split Congress

Tariff risk. This would impact retailers. Most goods sold by US retailers are imported (apparel, footwear, sporting goods, small household appliances, electronics, etc.). China is still a major manufacturing hub for all these products.

Blue sweep

A clean sweep by either party 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.

Biden with split Congress

Limited impact as the status quo likely continues.

Red sweep

A clean sweep by either party 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.

Trump with split Congress

Limited impact as the status quo likely continues.