U.S. Election: America goes to the polls

Content:

1. Setting the stage: Where are we now?
2. Introducing the Democratic and Republican candidates 
3. A closer look into the six key swing states
4. Market performance: What’s the crystal ball staying
5. Policy levers
6. Sector implications
7. Conclusion

01 Setting the stage: Where are we now?

On both the Democratic and Republican fronts, there have been a significant number of developments over the last couple of months. On the Democratic side, President Biden dropped out of the race and Vice-President Harris is now at the forefront of the Democratic ticket with Tim Walz as the VP pick. On the Republican side, we have former President Trump as the presidential nominee and JD Vance as the Vice President. With less than 40 days remaining on the lead up to election day, both parties have doubled down on their campaign efforts as they race to cement their support especially in the closely contested swing states. Key takes surrounding inflation, fiscal deficit, cultural ideologies and foreign affairs will continue to shape the narrative for the race.

Looking ahead to the 119th congress in 2025

The base expectation is for a divided government (i.e. when one party does not control both the White House and one or both houses of Congress) with 50-50 odds for a Trump-Harris victory. The odds for a Republican sweep in congress stands at around a 25% with a lower probability for a democratic sweep. We are unlikely to see major transformative legislations passed under a divided congress but issues that require bipartisan negotiations and agreements (i.e. immigration, energy permitting reform, China and supply chain issues) would benefit from a divided congress.

Given that the U.S. federal budget deficit has been growing, the presidential candidates would need to effectively address their plans for managing the budget. Going into 2025, if elected for President, Trump may support a full extension of the 2017 Tax Cuts and Jobs Act with partial fiscal offsets while Harris may preserve tax cuts to the middle class while putting additional tax on the wealthy and reverting back to a higher corporate tax rate. Ultimately, the economic policies and proposed measures of both candidates are likely to add to the widening fiscal deficit although a higher deficit is expected under a Trump presidency (appendix, figure 9).

Looking at the house and senate – out of the 435 house seats that are available, current consensus forecast points to 206 being allocated to Democrats, 207 to Republicans with 22 seats being a toss-up (out of which 9 are Democratic seats and 13 are Republican seats). Coming down to the Senate, 34 out of the 100 seats are up for re-election. Currently, the Democrats control the Senate 51-49 and 28 of the Democrat and 38 of the Republican seats are not up for re-election (appendix, figure 12).