As the November 2024 United States presidential election approaches, institutional investors have shared their perspectives on how the stock market might react to the potential victories of either Donald Trump or Kamala Harris.
Focusing on Vice President Harris, there’s notable skepticism among investors regarding the stock market’s prospects, anticipating increased volatility, as revealed by a Bloomberg survey conducted from September 9 to 13 with responses from 340 institutional investors.
The survey indicated that nearly 30% of institutional investors are likely to increase their equity risk if Harris wins, implying that a significant minority may still perceive opportunities in the stock market under her leadership. However, this sentiment is less optimistic compared to a Trump victory, where 50% of investors expressed intentions to boost their equity risk.
In contrast, around 40% of respondents indicated they would choose to lessen their equity risk should Harris assume the presidency. This reaction suggests that many anticipate market fluctuations, prompting a more careful investment strategy. Additionally, 30% of investors reported they would not adjust their positions if Harris were to win, reflecting a sense of uncertainty or a wait-and-see approach.
Understanding the Hesitation Regarding Harris
The anticipated effect of Harris’s potential win on the stock market largely relates to her proposed policies, particularly her tax agenda. This proposal emphasizes raising taxes on high-income individuals and corporations while offering relief and benefits to middle-class citizens.
There are concerns that, if enacted, these policies will negatively affect corporate earnings, fueling Wall Street fears about their impact on the stock market.
For example, Yung-Yu Ma of BMO U.S. Wealth Management pointed out that tax concerns are a significant issue for investors.
“Tax policy is a huge, huge concern for investors. Tax policy is something that is front and center in this election,” he stated.
Similarly, prominent hedge fund manager John Paulson warned that the financial markets could face a downturn and the U.S. could enter a recession if her tax proposals are executed.
“If Harris is elected, I’d pull my money from the market. I’d go into cash and I’d go into gold because I think the uncertainty regarding the plans they outlined would create a lot of turbulence in the markets and likely lower them,” Paulson stated.
Effects of Harris’s and Trump’s Tax Policies
In this context, banking powerhouse Goldman Sachs (NYSE: GS) has expressed that Harris’s proposed 28% corporate tax rate could lead to a 5% reduction in the earnings of S&P 500 firms.
Conversely, the bank suggested that Trump’s proposed tax cut could increase earnings by 4%. The Republican candidate aims to decrease the corporate income tax rate from 21% to 20%, with a possibility of lowering it to as low as 15% for domestic manufacturing companies.
Meanwhile, the investor perspective may shift as Vice President Harris is scheduled to unveil her economic plans in a speech on September 25. Sources familiar with the proposal hint that she intends to clarify that “as a capitalist, she understands the limitations of government.”
Ultimately, the presidential election is influencing investor sentiment, with those who present more favorable policies expected to garner greater support.
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