How the US elections will set the stage for stocks and metals

As the 2024 U.S. presidential election approaches on November 5, financial markets are bracing for heightened volatility. Vice President Kamala Harris and former President Donald Trump are in a close race, with polls showing narrow shifts that could have major implications for the economy.

Since entering the race in late July, Harris maintained a slight edge over Trump, but the dynamic shifted by mid-October. On October 13, polls revealed Trump taking a two-point lead in key battleground states—securing 48% of voter support, compared to Harris’s 46%. As the election nears, the race remains exceptionally tight, with both candidates trading leads.

A Tight National Race

Harris saw a bump in her polling numbers early in her campaign, but her momentum has leveled off since early September. Even after the highly anticipated September 10 debate, watched by 70 million viewers, the overall trajectory of the race has shown little movement. Polling trend lines have remained stable in recent weeks, suggesting that undecided voters could play a pivotal role in determining the election's outcome.

Safe Haven Demand

As the election date approaches, growing uncertainty is driving increased demand for safe-haven assets aside from geopolitical tensions in the region. This has caused assets like gold to surge, reaching a new all-time high of $2,736.

Despite markets pricing in a 25-basis point rate cut anticipated for November and China's central bank continuing its pause on gold reserve purchases, the yellow metal is maintaining its uptrend as we approach the next major event: the US elections.

Silver has also rallied to $34.13, the highest level since September 2012.

Stocks

The S&P 500 has historically delivered positive returns across almost every combination of political party leadership. And according to Vanguard research dating back to 1860, there is no statistically significant relationship between the performance of a 60% equity/40% bond portfolio during presidential election years compared to non-election years.

From a market perspective, Trump's proposed corporate tax cuts could be a game-changer. His plan to reduce the federal corporate tax rate from 21% to 15% would provide a significant boost to large-cap companies, particularly the so-called “Magnificent Seven” tech stocks. Lower taxes could drive earnings growth, increase shareholder returns, and fuel a rally in the broader stock market.

Harris, in contrast, plans to raise the corporate tax rate to 28%. While this would generate more government revenue, it could dampen profits for corporations, especially in sectors like technology and finance, leading to potential market headwinds.

Sectoral Impacts: Energy, Financials, and EVs

Trump's policies, if implemented, would likely benefit energy and financial stocks the most. His support for traditional energy industries, coupled with potential deregulation, could bolster oil and gas companies. Similarly, financial institutions would benefit from a more business-friendly regulatory environment.

On the other hand, Harris’s energy policies focus on accelerating the transition to clean energy, shifting incentives toward electric vehicles (EVs) and renewable sources. This could pressure oil demand in the long term, although it would be bullish for EV stocks and companies tied to the green energy transition. The market perception that Trump favors traditional energy while Harris leans toward alternative energy is largely accurate.

Trade Wars and Tariff Impacts

One of Trump’s most polarizing policies remains his stance on tariffs. He has vowed to impose tariffs of up to 20% on all imported goods and suggested a staggering 60% tariff on Chinese imports, along with a possible 100% levy on products from Mexico. Known for his protectionist approach, Trump’s tariffs could send shockwaves through sectors heavily reliant on global supply chains.

For the Magnificent Seven companies, which depend on imported components, these tariffs could lead to higher costs, reduced sales, and diminished profits. This potential escalation in trade tensions might spook investors and trigger a pullback in tech stocks.

A Trump victory might bring relief to traditional energy and financial stocks through tax cuts and deregulation, but it could increase uncertainty for multinational companies due to heightened trade tensions. Meanwhile, a Harris administration could accelerate the shift to green energy and clean technology but may introduce higher taxes and regulatory pressures that could weigh on corporate profits.

In this environment of election-induced uncertainty, investors will closely monitor policy developments and polling shifts in the lead-up to November 5, knowing that either result could reshape market dynamics.