Executive summary

As the US elections approach, markets are increasingly focusing on the candidates' platforms and their implications for the economy and markets. Taxation, foreign trade, immigration and fiscal policy are at the forefront of the candidates' agendas. Harris advocates for higher taxes on corporations and the wealthy to fund social initiatives and green policies, while Trump promotes tax cuts, deregulation and an increase in oil production.

The tariff agenda is particularly relevant for geopolitical, economic and investment perspectives. A Trump administration pursuing the proposals outlined in his campaign would pose higher risks of economic disruption and could strain alliances. The consequences of these actions are challenging to predict, especially in a world undergoing geopolitical shifts, where any action may provoke reactions from other global powers. For instance, China is likely to respond to tariffs and may adjust its stimulus measures based on the election results. On the other hand, a Harris administration may be seen as less disruptive and could see adversarial powers align more closely.

Most importantly, it will not be clear until after the elections which policies will be implemented – beyond the election rhetoric – or whether Congress would agree to enact them, depending on whether they hold sufficient majorities. That would also impact the timing of effective implementation.

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Monica Defend

Monica Defend

Head of Amundi Investment Institute

Investors should navigate the US elections by balancing short-term sector opportunities with long-term inflation risks, while keeping an eye on geopolitical shifts that could reshape market dynamics.

Monica Defend, Head of Amundi Investment Institute

Key takeaways

For investors, we see five main takeaways:

In the short term, market sentiment is likely to be driven by Trump’s proposed lower corporate tax regime versus the risk of adverse supply and the inflation consequences of tariffs, and his pledge to deport undocumented immigrants. Meanwhile, Harris should be seen as a continuity administration, especially if the Democrats do not have a majority in the House, which will allay fears of wealth taxes and possibly also higher corporate tax.

The "Make America Great Again" agenda may shape opportunities in US equities, with varying implications at the sector level driven by differing policies. The rally should broaden further, benefitting small caps and sectors such as banks under Trump. A Harris scenario could be more mixed for equities, with infrastructure, construction and green companies favoured.

Geopolitical reordering will shape market opportunities, particularly for emerging markets in the context of supply-chain relocations driven by tariffs and the competition for technological supremacy. Asia may be more under pressure in a Trump administration, but China may also consider the US elections outcome in assessing its stimulus. Other EM may benefit from relocation, such as Mexico.

Higher fiscal spending is likely to become a significant theme, with potential implications for inflation expectations. We may witness a further steepening of the yield curve and an increased probability of higher inflation regimes, prompting investors to factor inflation as a key component of their asset allocation. EM bonds could face challenges in an environment of higher inflation volatility under a Trump scenario. With inflation still on the radar, commodities and inflation-linked assets should be favoured as sources of diversification.

We think the dollar may have entered a structural downward trend, which only a tough trade policy or a strong reacceleration of US price inflation may be able to delay or even invert. In this respect, a Trump scenario is likely to offer a better opportunity for a stronger dollar, given the potential for policy divergence in favour of the Fed and a rise in the risk premium.

Policies differences in brief

Taxation Foreign Trade Immigration Debt and deficits
taxation

Harris favours higher taxation on corporates and wealthier households to finance higher social spending, more support for low-income housing, and continuing the green agenda. By contrast, candidate

Trump would reduce tax on corporates, cut government spending, pursue more deregulation, and increase oil production.

 

foreign trade

This is where their platforms diverge significantly.

Harris would continue with the current administration’s policy of strategic tariffs, largely directed at China.

Trump seeks more wholesale protectionism: a blanket 60% tariff on all imports from China and a 10-20% tariff on imports from all other countries. In practice, many suspect that, faced with possible retaliation and negotiation with trading partners, effective tariffs under a Trump presidency would be much lower.

 

immigration If Trump is serious about deporting undocumented immigrants -- over 10 million of the US workforces -- together with his tariff proposals, this would constitute a material supply shock, leading to lower growth and higher inflation. Even just strict control on immigration would reduce US labour supply.

 

debt and deficit Neither candidate shows much concern about debt and deficits, a significant medium-term concern for the United States (and the world). Consensus seems aligned in expecting that under Harris, the deficit would rise by about $2-3tn over ten years, and by $6-7tn under the Trump platform. This will be a material concern for investors given that US government debt is projected to increase to about $50tn by 2034 from the current level of $35tn.I

 

 

US election scenarios and market implications

US election - infographics

Source: Amundi Investment Institute, Amundi US as of October 2024. TCJA: Tax Cuts and Jobs Act. USMCA: United States-Mexico-Canada agreement. RoW: rest of the world. USD: US dollar.

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