US election: What a Trump or Harris victory means for stocks, bonds and crypto

The US votes today to elect its next president. Polls show the race to the White House is too close to call. Republican Donald Trump and Democrat Kamala Harris are neck and neck in this historic election. While public opinion polls are unclear, the financial market has shown its leanings. In recent weeks, the so-called “Trump Trade” has gained momentum, with movements in stocks, bonds, currencies, and even cryptocurrencies suggesting the potential return of Donald Trump as the 47th President of the United States.

But how do investment instruments like stocks or bonds predict election outcomes? What can these movements tell us about the election? And can they indicate voter sentiment?

Stocks and sectors

Both Donald Trump and Kamala Harris have outlined policy proposals that would impact the financial market. Historically, Wall Street has tended to favour Republican candidates for their tax cuts and business-friendly policies. In his last term, Trump lowered the federal corporate tax from 35 per cent to 21 per cent, and he now aims to reduce it to 15 per cent. An analysis from Bank of America suggests this tax cut could boost corporate earnings by 4 per cent.

Market analysts say that if investors expect a future Trump administration, they would likely bet on stocks in sectors like consumer discretionary and communication services.

Trump’s policies on illegal immigration and gun ownership may also benefit private prison and firearm manufacturing companies, and these stocks have seen gains recently. For example, shares in American prison operators Core Civic and GEO Group have risen, as has Trump’s own firm, the Trump Media & Technology Group, which went public earlier this year and has surged by over 100 per cent in the last month.

However, not all stocks may benefit from a Trump return. Trump has pledged to impose higher tariffs on goods from China, which analysts say would be inflationary, raising the cost of everyday items and hurting company profits. A study by the Tax Foundation indicates that this tariff plan could lower the earnings of S&P 500 companies by over 3 per cent.

Jeremy Siegel, a professor at the Wharton School, said, “Tariffs are, of course, he has threatened a 20 per cent tariff, but he says, I’m using that as a bargaining tool. A 20 per cent tariff would cause a lot of macroeconomic changes, and that’s something that a president can do pretty much unilaterally, without congressional approval. That would cause more inflation and a rising dollar".

A Kamala Harris victory, meanwhile, could mean a different outcome for the stock market. Harris has proposed increasing the corporate tax rate from 21 per cent to 28 per cent, which analysts believe would pressure company earnings. Bank of America has warned that a Harris win could reduce corporate profits by up to 5 per cent.

However, her plans to build 3 million houses could boost homebuilder stocks, and renewable energy stocks may also benefit given the Democrats’ support for a faster transition to wind and solar power. Both of these sectors have seen positive momentum since Harris led the polls.

As for the border market, according to data from Glenview Trust, Strategas, and Bloomberg, the stock market has usually gained on election day, barring extreme circumstances. In the last five presidential elections, the S&P 500 dropped only once, in 2008, when Barack Obama was elected amid a financial crisis.

Bond market signals

Another key financial market component is bonds, which serve as a barometer for the economy’s health. Bond prices typically fall as interest rates rise and vice versa. In September, the US Federal Reserve reduced its interest rate as inflation has eased since the beginning of the year, with expectations for further cuts.

Experts suggest that a Trump win might deter the Fed from its current path, which could negatively impact the bond market.

Siegel from Wharton School noted, “If the Republicans sweep and do all the tax cuts that Trump has been talking about with no tax increases except for tariffs, which has its danger, that would cause more of a negative bond market reaction".

Recently, the US bond market has experienced its worst selloff in six months, with Treasury prices dropping due to data indicating strong US economic activity. This casts doubt on the likelihood of another Fed rate cut, and the decision will be made just two days after the November 5 election.

What about the US dollar

The US dollar is also expected to be influenced by the election outcome. If Donald Trump retakes the Oval Office, Morgan Stanley suggests his proposed tariffs could strengthen the dollar, as foreign investors might view the US as a more stable investment destination.

Conversely, the American investment bank believes Kamala Harris would likely maintain the Biden administration’s approach, focusing on trade continuity with less fiscal expansion, which could weaken the dollar.

Cryptocurrencies have also become an indicator of the “Trump Trade,” with Bitcoin and other virtual assets rallying ahead of the election. A Trump win could sustain this momentum, given his promises to create a more supportive environment for cryptocurrencies. Trump has even launched his own digital currency and is backed by Elon Musk, a prominent crypto enthusiast.