Guide to the 2024 Election

1. Guide to the 2024 U.S. Presidential Election

Heading into tomorrow, the U.S. presidential election appears to be a 50/50 split. We have discussed in previous election commentary that although the party that holds office does have an impact on markets and the economy, the formation of Congress is the deciding factor. In the case of a red or blue sweep, partisan laws have a greater likelihood of being passed: new tax codes, tariffs, regulations, etc. On the other hand, a split Congress creates gridlock, making it more difficult for new laws to be passed. In either situation, we break down the potential outcomes of a Trump versus Harris victory, and what that means for different parts of the economy.^[1]

Immigration

It is likely that Harris would modestly tighten border restrictions, reducing the net flow of immigration to around one million per year by 2026. Trump would tighten net inflows to 0.4 million per year, and likely deport 3.3 million unauthorized migrants by 2027. By 2026, this would result in a net increase of -0.6 million immigrants per year under Trump, a ~1.6 million difference compared to Harris.

Lower labor force growth results in lower output of about 40 basis points (bps) under Trump. Over a four-year term, this results in lower GDP growth to the tune of 160 bps under Trump relative to Harris. Per capita income is unchanged under both administrations.

Trade

The assumption is a relatively unchanged trade policy under Harris compared to Biden. Trump would likely impose historically large increases in tariffs with the average tariff on U.S. imports from China increasing 10-20%. Average tariffs on imports around the rest of the world are likely to increase by 1-5%.

Trade policy uncertainty (TPU) is less of an unknown in a Trump second term versus the first. Greater TPU puts downward pressure on investments with a 1.5% drag on investment in Q1 2025, ultimately raising equity risk premiums. U.S. trading partners will likely respond with tariffs roughly equivalent to 60% of the U.S. tariffs.

Trump tariffs are probable to push inflation higher in 2025 by 40 bps, decrease growth by 40 bps, and raise the unemployment rate by 20 bps. The inflation component is likely a one-time price level effect, with modest ongoing implications.

Fiscal Policy

Fiscal deficits will not be much different under Trump or Harris, specifically with a slim Republican majority in the Senate. Projections show a 0.3% net new deficit under Harris (with a Republican Senate), and 0.4% under Trump. Both increases have a minimal impact on activity, unemployment, and inflation, but will likely cause interest rates to increase by 25 bps. In the case of a Republican sweep, a re-inflationary environment has a greater possibility.

Oil Prices

Trump has encouraged raising domestic energy production. By 2028, oil production may rise by 400 thousand barrels per day (bpd), up from 1.7 million bpd currently. This would be an increase of 0.5% relative to 2023 levels.

Monetary Policy

A rise in inflation from Trump tariffs is likely to be a one-off increase in price levels. It is possible that the Fed looks past this data and does not let it impact policy decisions. On the other hand, it may lead firms and households to increase short-run inflation expectations and have a stickier effect. As a result, the Fed may need to take more action if a tariff—induced inflation spike affects business and household spending habits.

To summarize, it is projected that GDP will expand by 1.6% less under Trump compared to Harris, due to lower net immigration and less labor force growth. Unemployment will be slightly lower under Trump early, then higher later into the four-year term. Inflation will increase ~35 bps from tariffs under Trump which is probable to be a one-time event. As a result, interest rates will be 25 bps higher under Trump by early 2026.

2. Fixed Income. U.S. Treasury yields were higher to the end last week; the 2-,10-, & 30-year yields rose 10, 14, & 8 bps respectively, steepening the curve 4 bps to +18 on the 2s10s. Risk appetite remained strong as high yield spreads compressed to a new recent tight of +275, levels last seen in June of 2007, while investment grade spreads widened by 1 bp to +83. U.S. credit ratings improved slightly over the week as the main rating agencies issued 30 upgrades and 29 downgrades. Within those changes, consumer staples had the most upgrades.

Municipal bond yields followed treasuries higher albeit at a slower pace, rising 2-4 bps across the curve. As issuers and investors await the results of the election, new issue supply this week is expected to be muted (25% of the yearly average) after six straight weeks of above-average issuance.

• The Week Ahead.

Earnings – Monday: BEN, CEG, FIS, FOX, HOLX, MAR, PEG, PLTR, RVTY, VRTX, WYNN, ZTS; Tuesday: ADM, AIG, AVB, BLDR, BR, CE, CMI, DD, EMR, ES, FANG, HSCI, IT, MCHP, MPC, NXPI, O, PGR, SMCI, TRGP, YUM; Wednesday: AEP, AIZ, COR, CRL, CVS, DVN, FICO, GILD, HWM, IFF, IRM, JCI, JKHY, MCK, MKTX, PNW, PTC, QCOM, SRE, TRMB, TTWO, WMB; Thursday: ABNB, AEE, AKAM, ALB, ANET, APA, APD, ATO, AXON, BDX, CPAY, CTVA, DUK, EPAM, EVRG, EXPE, FTNT, HAL, HST, HSY, KVUE, MNST, MRNA, MSI, MTCH, NWSA, PCG, PODD, RL, ROK, SOLV, STE, TAP, TDG, TPR, VST, VTRS, WBD; Friday: BAX, EOG, MTD, NRG, PARA.

Economics – Monday: Durable Orders, Factory Orders; Tuesday: U.S. Presidential Election, Markit PMI Services, ISM Services; Thursday: Initial Claims, Continuing Claims, Unit Labor Costs, Wholesale Inventories, FOMC Meeting; Friday: Michigan Sentiment.

Stephanie Link’s TV Schedule:

Return for Selected Indices^[2]

Sources:

^[1] Source: Evercore ISI. As of November 4, 2024.

^[2] Source: Bloomberg. As of November 4, 2024.