US election: Clean sweep or lengthy recounts?

The upcoming US presidential election presents significant implications for financial markets, hinging on the potential outcomes of either a Kamala Harris or Donald Trump victory. A Trump presidency is anticipated to foster an inflationary environment with potential support for corporate profits through lower taxes, although it may also introduce risks via blanket tariffs, particularly against China. This could result in a hawkish Federal Reserve and a stronger US dollar, posing challenges for international and emerging market equities.

Conversely, a Harris presidency could negatively impact corporate profits due to higher corporate tax rates but might create a more stable inflationary environment. A dovish Fed and a weaker US dollar under Harris could benefit emerging market and international equities, as well as the bond market. Her international policies are expected to continue those of Joe Biden, reducing global market volatility.

Both candidates must address the impending expiration of tax breaks from Trump's 2017 Tax Cuts and Jobs Act in 2025, which could significantly affect the US budget deficit. The election outcome's market impact will largely depend on whether either candidate achieves a clean sweep, allowing for more comprehensive implementation of their policies. The election's close race in key swing states and the possibility of lengthy recounts could introduce short-term market volatility, potentially offering investment opportunities for those with a long-term focus on fundamental economic dynamics.