Will Kamala Harris definitely get the nod?
It’s been a pivotal month in US politics, with plenty of action since that infamous June debate between Joe Biden and Donald Trump.
Biden has stepped aside and current Vice President Kamala Harris is all but assured as the Democratic nominee.
This will become official at the Democratic Convention in three weeks’ time, if not earlier, and by then we should also know who she’ll be running with.
Who will be her running mate?
You’d think she’ll opt for someone who’ll win votes from areas Harris might not be naturally as strong.
Someone more moderate, probably from a swing state, and in all likelihood a white male.
Josh Shapiro from Pennsylvania, Andy Beshear from Kentucky and Mark Kelly from Arizona are all contenders.
Hillary Clinton lost the “rust belt“ in 2016, before Biden won it back in 2020. That part of the US is likely to decide this election too.
How different would Harris be to Biden?
The Harris campaign will be similar to Biden’s.
They’re from different generations, although both are loyal Democratics who takes their cues from the party (in sharp contrast to Trump).
Have the odds changed since Biden stepped aside?
Before that fateful June debate, the betting odds were suggesting a narrow Trump victory.
They moved further in his favour after that, before surging again following the assassination attempt in mid-July.
This trend has reversed since Biden stepped aside, although most polls suggest Trump still has the edge.
What should we make of JD Vance?
The Republican camp has confirmed that Ohio senator JD Vance will be Trump’s running mate.
Vance turns 40 this week, and he’d be the youngest vice president since Richard Nixon in 1952.
If successful, he’s expected to be more active than most vice presidents.
He shares Trump’s America first views, he’d support more tariffs and additional curbs on immigration.
That could help domestic businesses over multinationals, and it could also fuel inflation.
That might put upward pressure on interest rates, as would the higher deficit many are expecting.
Ironically, the US dollar might find support under that scenario, despite Trump’s hopes it will weaken, increasing the competitiveness of American manufacturers.
What are the biggest policy differences between the two camps?
The biggest policy battle could be on the tax front.
The Democrats want to increase the corporate tax rate from 21 to 28 per cent, while leaving it below the 35 per cent level that Trump reduced it from in 2017.
Enacted during his first term, the Tax Cuts and Jobs Act also cut income tax rates, but only temporarily.
Those income tax cuts expire at the end of 2025, and without any action from congress they’ll revert to their previous (higher) levels.
A Trump-led regime would look to overturn parts of the 2022 Inflation Reduction Act, while repealing some climate and renewable energy policies.
Will we see a clean sweep, or more gridlock?
A lot will depend on who wins congress, as a clean sweep would help either candidate execute their agenda.
Right now, the Republicans control the House of Representatives, while the Democrats have a majority in the Senate.
A Republican sweep looked likely not so long ago, although the post-Biden reset increases the chances of a divided congress.
It’s extremely hard to see a Democratic clean sweep eventuating.
What about China?
One thing both sides share is concern over the growing power and influence of China.
Although Trump is much more forthright in his views, the Democrats still want to “derisk” this changing global dynamic.
While the rhetoric is different, relations between the world’s two biggest economies are likely to remain tense.
Presidents have a high degree of executive authority when it comes to tariffs and immigration, even if there’s gridlock in congress.
That could put companies dependent on China, either because of revenue exposures or supply chain integration, at risk.
Which side could be better for big tech?
There’s also some common ground around the dominance of big tech, which will see the sector remain under scrutiny regardless of the election outcome.
Many Democrats believe big tech has become too powerful, and harbour concerns around privacy and the impact of social media on young people.
Some Republicans are equally apprehensive and have their own misgivings about the sector.
How should investors be thinking about the election?
In the 20 election years since 1945, the US sharemarket (based on the S&P 500 index) has risen on 18 occasions, which is an impressive 90 per cent hit rate.
The two election year declines came in 2000 and 2008, both of which were around the time of US recessions (the bursting of the dot com bubble and the GFC).
This is an important reminder that fundamentals – in terms of the economic backdrop and the earnings outlook – are what matters most for path of financial markets.
At the same time, it would be naïve to suggest investors sit on their hands when such major shifts in the political environment could be underway.
A Trump victory with a unified congress is still very possible, if not probable.
Dramatic portfolio adjustments may not be the answer, but some fine-tuning might be wise as November gets closer.
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Keep up to date with our fortnightly Market Insights enewsletter. Our research team provide timely and regular commentary and analysis on market developments, understanding investment jargon, and the impact of current events.
Mark Lister
Investment Director
Market Insights enewsletter
Keep up to date with our fortnightly Market Insights enewsletter. Our research team provide timely and regular commentary and analysis on market developments, understanding investment jargon, and the impact of current events.