The Impact of Trump and Harris Platforms on US Equities: Citi Strategists Warn of Potential Declines
In a recent note released by Citi strategists, it was revealed that the platforms of both U.S. presidential candidates, Donald Trump and Kamala Harris, could have negative implications for US equities, especially in a "sweep" scenario. According to the report, Harris's policies are expected to be incrementally more harmful than Trump's, with both candidates' platforms presenting significant challenges.
Citi's baseline projections suggest that under a Trump "sweep" scenario, where he wins the election and Republicans gain control of both houses of Congress, the S&P 500's fair value could decline by 0% to 4%. On the other hand, a Harris "sweep," where Democrats control both the White House and Congress, could lead to a more pronounced drop of 3% to 6% in the index's fair value.
One key differentiator between the two platforms is tax policy. Harris's proposal to raise corporate taxes from 21% to 28% could exert significant downward pressure on corporate earnings, directly impacting stock prices. Citi estimates that this tax hike could contribute to a 6% reduction in earnings per share by 2026. In contrast, Trump's platform of extending the Tax Cuts and Jobs Act and reducing corporate taxes to 15% would help maintain the current corporate tax structure.
Both platforms also include elements that raise deficit concerns. Trump's plans, including the extension of the TCJA and new tariffs, could add $4-5 trillion to the deficit over the next decade. Harris's platform, with tax credits and expanded social programs, is expected to have a deficit impact of $1.5-2 trillion.
On tariffs, Trump's proposed baseline tariff on all imports and tariffs on Chinese imports could harm U.S. companies by raising costs and disrupting supply chains. This could lead to higher prices for consumers and squeezed profit margins for companies reliant on foreign goods, further weighing on the market.
In a "split Congress" scenario, Citi suggests that most major risks to the S&P 500 would be mitigated due to legislative gridlock limiting the scope and impact of policy changes. However, the election landscape poses a potential "tail risk" to market performance, and investors should pay close attention to any incremental policy changes.
Overall, while both candidates' platforms may present challenges for the stock market, broader macroeconomic factors like interest rates, Federal Reserve policies, and AI tailwinds will remain the primary drivers for equities. Investors should stay informed and prepared for potential market fluctuations based on the outcome of the election.