News and events

09.25.2024

The Harris Case Macro scenarios policy and cross-asset implications

Macro and cross-asset implications of the forthcoming US elections

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With trade and immigration policies not at the forefront of the Democratic agenda, investors are likely to assess the election results primarily in terms of fiscal and monetary policy impacts. In a nutshell:

MACRO
In terms of macroeconomic impacts, in the event of a Democratic sweep, we anticipate that a modest increase in the budget deficit will have a neutral effect on growth and inflation through 2026. In this case, we would still expect the Fed to reduce rates by 200-225bps by 2026. However, with a split Congress, fiscal policy is expected to be marginally more expansionary than under current legislation, which would increase slightly inflation risks, resulting in a somewhat less dovish Fed, with a 25bp reduction in rate cuts compared to the current baseline.

RATES
If we approach the US presidential elections with yields at their current levels and Kamala Harris wins, we would tactically extend our exposure at 4.20% in a split Congress scenario and at 4.0-4.10% in a Democratic sweep scenario. Our more cautious stance in the event of a split Congress is due to expected increases in the budget deficit in 2025 from higher public expenditure not matched by tax increases, especially at corporate level, coupled with anticipated growth and inflation risks that might lead to a slightly more hawkish Fed. Strategically, we would maintain an OVERWEIGHT position in both scenarios, although the potential for yields to fall below current levels is limited unless growth weakens more than expected.

EQUITY
A Harris victory is expected to be marginally negative for US equities, as corporate fundamentals may weaken due to a higher tax burden, especially in a Democratic sweep scenario. However, we remain strategically OVERWEIGHT; raising corporate taxation aggressively is likely to be politically challenging even in a Blue wave scenario, and it will likely take some time to be implemented. Under Harris’s presidency, we anticipate the S&P 500 could rise by up to 10% over the next 12 months, driven by single-digit EPS growth and softer multiple expansion. Against this backdrop, we view any market weakness as a buying opportunity.

USD
Under a Harris administration, we expect minimal significant effects on the USD relative to our long-term EUR/USD forecast. This is because: 1) Harris’s trade policies are expected to have a limited effect on the USD, 2) the Fed’s monetary policy is anticipated to weaken the USD in the medium term, and 3) Harris’s fiscal agenda in 2025 is expected to affect the US macroeconomic situation only marginally, with growth predicted to progressively fall below potential by 2026.


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