American stocks continued doing well this week as investors moved on past the Japanese yen carry trade mess that happened two weeks ago. The Dow Jones index has risen by over 5.65% from its lowest point this month.
Similarly, the Nasdaq 100 index has moved into a bull market, rising by over 11.7% from its lowest point in August. The S&P 500 index has jumped by more than 8.29% in this period.
This recovery happened as investors continued to buy the dip in US equities as recession fears dropped. Data released this week showed that the country’s inflation continued falling in July while retail sales improved during the month.
Kamala Harris vs Donald Trump
A key catalyst driving stocks is the ongoing presidential campaign. With Joe Biden out of the way, focus has shifted to Kamala Harris, a younger and more energetic candidate than Donald Trump.
Recent polling data shows that Kamala has a higher chance of beating Donald Trump. Polymarket places her chance at 54% compared to Trump’s 44%. This is a big chance since Trump was leading the poll when compared with Joe Biden, especially after his disastrous debate performance.
A recent poll gave Kamala Harris a lead in key swing states like Michigan, Wisconsin, and Pennsylvania. She has also raised millions of dollars.
Still, it is too early to predict who will win the general election, which is about three months ago. Also, in the past, polls have been wrong.
Therefore, the question is on who will be a better candidate for US stocks when they become the president.
Donald Trump and his policies
Donald Trump has made several policies that will affect the stock market. First, he has promised to implement more tax cuts and to preserve those he passed during his presidency.
Ideally, tax cuts should be welcomed by the stock market. However, there is a limit to this since the US public debt has jumped sharply in the past few years. It soared by over $8 trillion in his first term and has moved by over $4 trillion in Biden’s term and now stands at over $35 trillion.
More unfunded tax cuts could backfire on Trump as we saw in the UK under Lizz Truss who crashed the stock and the bond market.
Second, Trump has maintained his view on tariffs, which he believes are the best way to solve the country’s trade deficits. However, his tariffs, which Biden maintained, have not narrowed the deficit and have even made it worse. The market will likely react negatively to another trade war.
Third, Trump has also pledged to interfere with the Federal Reserve’s independence. Such a move, if implemented, would be negative for the US dollar and US stocks. A good example of this is Turkey, which has seen its currency plunge over years. On the positive side, the president has no mandate to change these policies.
The other positive is that Trump would focus on de-regulation, which is a good thing for American companies. His policies would also encourage mergers and acquisitions in the country.
Dow Jones vs Nasdaq 100 vs S&P 500 under Biden
Dow Jones vs Nasdaq 100 vs S&P 500 under Trump
Kamala Harris economic policies
Meanwhile, Kamala Harris has not delivered her economic policies yet. Nonetheless, analysts believe that she will be a continuation of Joe Biden’s policies. She believes in tax rises for companies and wealthy Americans. It will be difficult to implement these policies if polls are correct in that they expect Republicans to win the Senate.
Second, she prefers more money to boost the country’s infrastructure, fight climate change, and welfare. These policies will likely require the approval of the Senate and the House of Representatives.
Unlike Trump, and like Biden, Kamala Harris believes in regulations, meaning that M&A deals could remain under pressure.
Kamala vs Trump on stocks
Therefore, from a policy perspective, there are signs that Kamala Harris would be good for American stocks.
However, historically, data shows that US equities do well regardless of who wins the White House. That’s mostly because presidents don’t have too much power on the stock market as many people think.
The stock market did well under Obama, who was accused of being a socialist. In his eight years in the White House, the S&P 500 index rose by 182%.
Stocks also did well under Trump, with the S&P 500 index rising by rising by over 65%. Returns under Biden have been about 17%.
Another notable thing is that stocks expected to do well under a certain president do the opposite. For example, the narrative is that solar stocks would do well under Biden because of his emphasis on climate change. However, many solar stocks like Sunnova and Enphase Energy have dropped this year.
On the other hand, prison stocks like CoreCivic and Geo Group were expected to drop. In reality, most of these companies have thrived under Biden. Therefore, the stock market will likely do well under either candidate.
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