Elections are always a focal point in the financial world, but this one has the potential to significantly reshape U.S. financial markets, with policy shifts likely to impact various sectors for years to come[1].
If Kamala Harris is elected and enacts sweeping tax reforms—such as higher capital gains taxes, increased earned income tax, and a new unearned gains tax on small businesses and family-owned operations—these policies could increase the burden on individual investors, entrepreneurs, and family-run enterprises.
Trump’s proposed tariffs would likely raise costs for consumers along with manufacturing and import-heavy sectors, potentially benefiting domestic industries, but also creating cost pressures from the increased expense to bring goods and raw materials into the United States in sectors reliant on global supply chains.[2,3,4]
While there is no frontrunner at the moment, let’s speculate on potential scenarios
Kamala Harris Presidency:
- Capital Gains Tax Increase: Sectors such as Technology, Finance, and Real Estate, which rely heavily on capital gains, could be negatively impacted by higher taxes. In contrast, safer investments like government bonds may benefit as they become more attractive to investors seeking to avoid high capital gains taxes.
- Earned Income Tax Increase: Higher taxes on middle- and upper-income brackets could cause a reduction in spending, hitting sectors like Consumer Discretionary, Retail, and Automotive.
- Unearned Gains Tax: A new tax on small businesses and family-owned operations with generational ownership could reduce the after-tax value of their assets, placing additional financial strain on these enterprises. This could negatively impact sectors such as Agriculture and Local Manufacturing, potentially leading to industry consolidation as smaller businesses struggle to remain competitive.
- Overall Market Impact: Sectors like technology, finance, and real estate may face headwinds due to higher capital gains taxes, reducing investor appeal and profitability in capital-intensive industries. Increased earned income taxes could dampen consumer spending, impacting consumer discretionary, retail, and automotive sectors. The proposed unearned gains tax on family-owned businesses could strain agriculture and local manufacturing, potentially leading to industry consolidation. However, healthcare and green energy sectors are likely to benefit from government support and investment in sustainability initiatives.
Donald Trump Presidency:
- Tariffs and Protectionism: Local manufacturing and agriculture could benefit, while sectors reliant on imports—such as Retail and Automotive—may suffer from increased costs. Inflation could rise due to higher input costs, leading to short-term volatility but potentially long-term growth for U.S. industries.
- Reduced Corporate Taxes: Large-cap industries such as Technology and Defense could benefit from reduced corporate taxes as it would allow them to reinvest profits into research and development and expand operations. While small businesses might struggle with higher costs due to tariffs limiting the impact of the reduced tax rate
- Deregulation: Reduced regulations would benefit sectors like fossil fuel energy, finance, and real estate allowing companies in these sectors to engage in riskier activities and could harm green energy and climate-focused sectors due to a lack of regulatory support.
- Overall Market Impact: Domestic manufacturing and agriculture could see gains due to protectionist tariffs and deregulation, but retail and automotive sectors reliant on global supply chains may suffer from higher costs. Reduced corporate taxes may boost profitability for large-cap industries, particularly in technology, defense, and finance, leading to increased capital investments and shareholder returns. However, small businesses might struggle to absorb the higher costs brought on by tariffs. Deregulation would benefit traditional energy sectors like fossil fuels and real estate but could slow growth in green energy and climate-focused industries, which rely on regulatory support.
A Harris presidency may result in contractions in sectors with high tax exposure, while a Trump presidency could spur domestic growth, albeit with increased inflation and market volatility. Investors will need to consider adjusting their strategies to balance risk based on the evolving political landscape.
Asset Class Implications:
- Bonds: A Trump or a Harris victory could create opportunities in bonds, with increased demand for safe-haven assets due to potential market volatility. However, the risks of inflation, rising government debt, and higher interest rates could create challenges for the bond market with either candidate.
- Equities: Harris’s policies could positively impact sectors like green energy, infrastructure, and healthcare due to increased government spending. At the same time, higher taxes and regulation could create challenges for corporate profitability and increase volatility in financial and technology stocks.
Trump’s policies on tax cuts and deregulation could boost corporate earnings and drive stock prices higher in technology, fossil fuels, finance and real estate. However, his trade policies and the inflationary pressures from tariffs could hurt sectors like retail and automotive dependent on global supply chains.
How is Toews Asset Management Preparing?
We constantly monitor the risk landscape. We will continue to follow our systems to mitigate risk by reacting to the markets in real time. As always, we continuously assess and optimize the structure of our investment products and strategies for the new world we live in.
Remember, elections come and go, but (Wu Tang is forever) the fundamentals of prudent risk management remain the same. As financial advisors, your clients should consider remaining invested in the market with risk management so they can benefit from long-term growth—no matter who occupies the Oval Office.
All statements other than statements of historical fact are forward-looking statements (including words such as “believe,” “estimate,” “anticipate,” “may,” “will,” “should,” and “expect”). Although we believe that the expectations reflected in such forward-looking statements are reasonable, we can give no assurance that such expectations will prove to be correct. Various factors could cause actual results or performance to differ materially from those discussed in such forward-looking statements.
This market update is intended to provide general information only and should not be construed as an offer of specifically tailored individualized advice, and no representation is being made as to whether the information provided herein would be beneficial for any or for a specific Employer Benefit Plan or investor.
For additional information about Toews Asset Management, please visit our website, www.toewscorp.com.? 7161756 MK
