Market participants have been on edge in the last few weeks due to momentous political events. President Biden failed in the televised debates with Donald Trump. Shortly after, Trump survived the assassination attempt during a rally with voters. Following this, Biden decided to withdraw from the presidential race.
He appointed his nominee, Vice President Kamala Harris who wasted no time and managed to obtain support from delegates and gained popularity with voters.
Watching these political twists, analysts at Morgan Stanley advise getting used to uncertainty. They warn that the presidential race may take any direction at any time.
As soon as Joe Biden confirmed his decision to finish his campaign, dozens of polls were conducted, showing that the competition between Harris and Trump was not as clear-cut as many expected. According to national polls, Kamala Harris is sometimes slightly ahead and sometimes slightly behind Donald Trump. It looks like a real battle of titans has been unfolding before the eyes of the global community!
Even in battleground states, Harris is holding her ground, only slightly trailing in key regions. As a result, betting analysts quickly adjusted their odds. Trump’s chances of winning dropped to 60% from nearly 75%, while the Republicans' odds in all contentious areas fell to 35% from over 50%.
Analysts at Morgan Stanley note that Harris’s political views on major issues concerning financial markets are quite similar to Biden’s positions. During her 2020 campaign, her stances on healthcare and taxes were closer to Biden's than to other candidates. Importantly, any significant legislation will depend on the composition of Congress.
When it comes to issues like trade tariffs, Kamala Harris is expected to follow Biden’s path, recalling her work in his administration. "This may not lead to global changes in the economic outlook, but it could impact certain sectors of the stock market," Morgan Stanley says. For instance, the energy and telecommunications sectors could face challenges if Democrats continue extending tax credits, while the clean tech sector might benefit from support for green energy under the Inflation Reduction Act (IRA).
Morgan Stanley believes that market trends based on current economic factors could become more pronounced as the election approaches. For example, analysts predict that the differential between long-term and short-term Treasury yields will become even wider. This is likely due to a decline in short-term Treasury yields amid forecasts of falling inflation, which could lead to a rate cut by the Federal Reserve later this year.
After the election, the policies enacted will have a profound impact on financial markets, especially on government bonds, the US dollar, and all key business sectors. Of course, the specific consequences will depend on the outcome of these fierce elections.
