Either Vice President Kamala Harris or former President Donald Trump will be elected as president on Tuesday. All 435 members of the House of Representatives are up for election, and 34 Senate seats will be decided.
As CNBC reports, between Sept. 15 and Oct. 31, S&P 500 companies discussing their earnings on investor conference calls used the word “‘election” almost 100 times. That is the highest number of companies using the word “election” since 2004 and probably longer. The nation is anxious because the two candidates for president offer two starkly different platforms for the country.
The polls say the race for the White House is a toss-up. The polls for the House also indicate a coin flip for which party will win a majority. But the polls consistently indicate that Republicans will be the majority party in the Senate when all the votes are counted.
Markets are betting on a Republican sweep. Investors believe that if Trump wins, his coattails will be long enough to ensure a Republican majority in both the House and also in the Senate. If Republicans sweep the board, the immediate reaction of financial markets is impossible to predict. However, by the time the votes of the Electoral College are counted by Congress on Jan. 6, 2025, the momentum of U.S. equity markets should be solidly positive.
Trump and the Republican Party are, at least in broad terms, pro-capitalism. A Republican-led Washington would ensure continued low corporate taxes, and a major effort to dismantle the regulatory state of the federal government. Sectors of the economy that would benefit include advanced technology, banking, and energy.
Nonetheless, a Harris victory might bring a Democratic majority in the House. But even if Harris wins, she almost certainly would face a Republican majority in the Senate. Gridlock would prevail in Washington. Markets would be comfortable with this outcome. Taxes on business would remain low. A Republican Senate would resist raising the corporate tax rate. Moreover, financial markets know that the Supreme Court is intent on rolling back the regulatory state. It is important to emphasize that a Democratic sweep is very unlikely.
Markets are correctly concerned that the results of Nov. 5 will be challenged by whichever party loses. Uncertainty is bad for markets and the economy. If the polls are right, the results of the presidential election will not be known for a few days. The state of Pennsylvania will not begin to count mail-in votes until Election Day. The polls in Pennsylvania show a dead heat. That said, markets can deal with a delay of a couple of days. What markets really worry about are political violence and a protracted vote count.
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Fortunately, widespread political violence is very unlikely. The nation was caught off-guard four years ago. Now the federal government is ready for just about anything. In addition, from the experience of Bush v. Gore in 2000, markets understand that the nation has to know the name of the next president by early December. Markets can wait for a few weeks.
Ultimately, however, the bottom line is that, over time, U.S. equities go one way — up.
James Rogan is a former U.S. foreign service officer who later worked in finance and law for 30 years. He writes a daily note on the markets, politics, and society. He can be reached at [email protected].