Finally, Election Eve

The upcoming election results are pivotal not only for determining the presidency but also for the control of Congress, which could take longer to finalize due to close races and potential recounts. Investors should avoid emotional reactions to the election outcomes, as political shifts are cyclical and future elections may offer more favorable conditions. Regardless of the election results, a super-majority is unlikely, necessitating compromise between parties.

In a Republican sweep scenario, temporary extensions of the 2017 tax cuts are expected, alongside reductions in green energy subsidies and a focus on Medicaid reform. Tariffs, particularly against China, could increase, and immigration flows may decrease. If Harris wins with a GOP Senate and Democratic House, similar tax cut extensions may occur, but without entitlement reforms, leading to larger budget deficits, which could concern the bond market.

A Trump presidency with a GOP Senate and Democratic House would also see temporary tax cut extensions, with concessions such as higher top tax rates and increased state and local tax deductions. Trump may attempt to revive the power of "impoundment" to cut discretionary spending without congressional approval. A Democratic sweep would likely result in tax increases, including higher corporate and capital gains taxes, with continued immigration flows and potential involvement in international issues like Ukraine.

Investors should remember that the US constitutional system has endured for over two centuries, and future elections can address any dissatisfaction with current policies. The significant federal budget deficits, despite low unemployment and no ongoing wars, highlight an issue that will require attention in the coming years.