With Election Day less than eight weeks away, the race between Vice President Kamala Harris and former President Donald Trump remains fiercely competitive.
The race, marked by stark contrasts in policy and style, is centered on seven key constituencies.
The results in these states, filled with ads and extensive field work, will likely determine the next occupant of the White House.
One of the biggest concerns for voters and investors alike is the state of the state budget.
UBS makes it clear that the outcome of this election is unlikely to resolve the ongoing budget imbalance issue.
Both Republicans and Democrats acknowledge the unsustainability of current public finances but differ on how to fix the problem.
While Republicans generally focus on cutting spending, Democrats advocate for increased revenue. Unfortunately, neither path seems likely to lead to a balanced budget, especially given the political divide in Congress.
Aside from budget concerns, the fiscal year 2025 budget negotiations and upcoming debt hikes are set to make things even more difficult, regardless of who wins.
The risk of a government shutdown and the reinstatement of the federal debt limit as early as 2025 presents potential financial instability. Historically, different governments have struggled to find consensus on these issues, often leading to last-minute compromises.
The role of the Federal Reserve in this election year is also under scrutiny. Despite asserting that political considerations do not affect monetary policy decisions, UBS notes that the Fed has adjusted interest rates during 11 of the last 12 election cycles.
While that adjustment had no real impact on the election results, markets will undoubtedly react to any policy change.
Recent Supreme Court decisions have also reshaped the regulatory landscape, reducing the power of federal agencies to interpret vague laws.
This could cause uncertainty in sectors ranging from health care to energy, as businesses navigate the potential for deregulation or increased regulation depending on election results.
Energy policy is another area of focus, especially in light of the 2022 IRA, which represents the US’s largest investment in clean energy.
The Harris administration is likely to support the IRA provisions, while the Trump administration may want to scale back or adjust its focus, particularly with respect to electric vehicle subsidies.
However, UBS notes that even in the case of a “Red Sweep”, a full reform of the IRA is unlikely due to the growing importance of renewable energy in key regions of the Republic.
In terms of trade policy, UBS emphasizes the president’s ability to impose tariffs with fewer restrictions. Both Harris and Trump are expected to use tariffs as a foreign policy tool, although Trump may employ them more widely.
Tariffs, while effective in certain circumstances, can have inflationary effects and disrupt global supply chains, creating additional challenges for businesses and consumers.
Foreign policy considerations go beyond trade. Questions about the US president’s authority to withdraw from international treaties or use military force without Congressional approval are of particular importance in this election. While Congress has greater power in treaty negotiations and declarations of war, recent administrations have exercised broader discretion in foreign affairs.
How the next president deals with these issues will have a long-term impact on international relations and military engagement.
Domestically, immigration policy is a key topic in the campaign, with Trump promising a major deportation effort.
Although the executive branch has the most authority in this area, UBS notes that practical challenges such as resource limitations may prevent such an initiative from being fully implemented.
The balance of power in Congress will also play an important role in shaping post-election policy. Key Senate races in states like Montana, Ohio, and Pennsylvania will determine whether Democrats or Republicans control the upper chamber, while House races in states won by Biden in 2020 remain highly competitive.
A divided Congress can limit either party’s ability to implement important legislative changes, regardless of who wins the presidency.
Voting accuracy has been the subject of much debate after the 2016 and 2020 elections, where the results deviated from expectations.
UBS acknowledges that while the electorate has made some changes, public confidence in voting remains low, especially with Trump voting.
The accuracy of midterm elections has been widely trusted, but the unique dynamics of presidential elections can present a variety of challenges.
Election security, particularly for mail-in ballots, continues to be an issue. UBS stresses that postal voting is not a new practice and is generally secure, with very few documented cases of fraud.
However, timely delivery of ballots and verification procedures will be critical to ensuring fair and transparent elections.
The potential impact of third-party candidates, although historically limited, is another consideration for UBS. While prominent third-party candidates such as Ralph Nader and Ross Perot influenced past elections, the withdrawal of Robert F. Kennedy Jr. in the 2024 race it is unlikely to have a major impact on the outcome.
One unique feature of the US electoral system, the Electoral College, is also in focus. Although the system was designed as a compromise between smaller and larger regions, its continued existence is controversial.
If no candidate receives the required 270 electoral votes, the election will move to the House of Representatives, where each district delegation will cast one vote, a situation that could introduce additional complexity to the process.
Although elections can cause short-term volatility, long-term trends suggest that political party affiliation does not have a significant impact on market performance.
However, sector-specific results may vary. In the energy sector, the Trump administration is likely to favor oil companies, while the Harris administration could focus on renewable energy projects.
The financial services industry may benefit from a Trump presidency due to easier oversight, while the Harris administration may impose stricter regulations, particularly in areas such as consumer protection and banking consolidation.
The technology sector is poised to remain at the center of international disputes, particularly regarding semiconductor exports. Both candidates are likely to maintain restrictions on technology transfer to China, although the details may differ.
The broader technology industry is likely to experience increased volatility, particularly in the hardware and semiconductor sectors, as supply chains change and tariffs are rolled back.
Tax policy is another area of division between the candidates. Trump is advocating making the 2017 tax cuts permanent and lowering corporate taxes further.
Harris, on the other hand, supports raising taxes on the wealthy and corporations. The ability to enact these changes will depend heavily on the composition of Congress, with a divided legislature making meaningful tax reform difficult.
Finally, UBS expresses concern about the future of the US dollar. While the Harris administration may introduce policies that weaken the dollar, such as higher taxes and increased government spending, Trump’s trade policies and the potential for a growing deficit could damage the dollar in the long term.
