The currency market will react the most rapidly. During the Asian session (in Tokyo), with the first results of vote counting, there may be a sharp movement in major currencies against the dollar – this volatility will continue until the election results are announced and the elected president delivers his/her speech.
Impact of the upcoming U.S. presidential election on different financial markets:
1. The currency market will react the most rapidly. During the Asian session (in Tokyo), with the first results of vote counting, there may be a sharp movement in major currencies against the dollar – this volatility will continue until the election results are announced and the elected president delivers his/her speech. A reversal of the dollar's rising trend against the Euro, Yen, and other currencies is possible, as political uncertainty in the U.S. will dissipate. Investors may start diversifying assets into other currencies (and assets in other currencies). The new administration will also have to address the issue of the negative impact of a very high U.S. dollar rate on U.S. exports.
2. The effect on the U.S. stock market (and, through it, on other major stock markets) will be fairly sharp in certain sectors but limited on the broader scale, as there is no clear favorite among the candidates for the stock market. Negative effects from expected tariffs or tax increases will be offset by reduced volatility as political certainty takes hold (except in the case of a "contested outcome" described further).
3. The bond market will experience mixed effects. On the one hand, the market currently expects Trump to implement his tariff ideas, which could drive inflation higher. This would prompt the Federal Reserve not to cut rates. There is also an opposing view that his propositions might reduce the budget deficit, accelerate the onset of a recession, and result in a new, more “compliant” Fed chair who would adopt a more accommodative monetary policy. Therefore, if Trump’s victory will follow a possible drop in bond prices in the day of the election, it would be advisable to buy long-term U.S. Treasury bills.
What is the difference for the markets if Trump wins and if Harris wins?
1. If Trump wins: Trump’s victory could have a stronger impact on the dollar than Harris’s one. His administration is expected to pursue a more aggressive policy to increase U.S. exports. For instance, analysts at Mizuho and Credit Agricole predict the yen could reach 160 immediately following Trump’s victory, but it may quickly retract due to the continuation of the Fed’s rate-cutting cycle. If Republicans achieve a full victory in Congress, the stock market (both equities and bonds) is likely to decline due to fears of rising tariffs and other unpredictable actions by Trump that could lead to inflation and a faster downturn into recession. Chinese stocks, as well as those in the technology and clean energy sectors, are expected to be among the worst performers. Meanwhile, traditional commodity companies (oil, gas, metallurgy), defense contractors, and crypto companies may find growth incentives. Interestingly, a survey by RBC Capital Markets showed that investors habitually view a full Republican victory as the best election outcome for stocks, while a full Democratic victory is seen as the most negative.
2. If Harris wins: Harris would likely follow a “no sudden moves” strategy (kick the can down the road), as she would aim for re-election in 2028. This approach would likely resume an accelerated Fed rate-cutting cycle (negative for the dollar and positive for bonds) and allow the economy to gradually slide into recession through the usual business cycle (which is not particularly favorable for stocks). However, her presidency would be more appealing to Chinese stocks, which would be relieved of the threat of Trump’s extreme tariffs. Additionally, American homebuilder stocks could benefit from her initiatives to support homebuyers.
What could U.S. economic, tariff, and budget policies look like after the election under Trump or Harris? How would Republican or Democratic victory affect the U.S. economy overall and the national debt?
1. If Trump wins: Trump may be more focused on reducing budget expenditures, including areas such as social support for the low-income and migrants, as well as foreign aid (not only and not primarily to Ukraine). A recent speech by Musk (who is expected to be a key architect of Trump’s economic policy) indicated that he is inclined towards a large-scale budget sequestration, even if it crashes the stock market and pushes the economy into recession. Since Trump won’t be running for re-election in 2028, he may boldly pursue his MAGA strategy to go down in history as the "savior of the American dream." If the Republican majority can be formed in both chambers of Congress (the House of Representatives is very likely to remain in their control, while the Democrats have better chances in the Senate), we can expect accelerated legislation in the coming year aimed at cutting social spending, increasing external trade tariffs, and some domestic tax reductions. The Republican approach to national debt will likely involve efforts to restrain its growth, including pressure on the Federal Reserve to lower rates (Powell is expected to be replaced in 2026). In the event of a stock market crash, investors will inevitably shift some funds into U.S. Treasuries, which would positively impact the global market for government and high-quality corporate debt in 2025.
2. If Harris wins: We expect that changes in the U.S. economic policy will be minimal if a Democratic candidate wins and maintains the Democratic majority in the Senate. For the Democrats, it would be prudent to continue the same policies as under Biden: (a) increasing the national debt, (b) boosting government spending on social programs, healthcare, immigrant integration, and military expenditures for "friendly countries," (c) raising taxes and fees on "old" energy, the wealthy, and financial markets (capital gains taxes, stock buybacks, and dividends), and (d) stimulating (subsidizing) the development of sectors such as "alternative" ("new") energy, defense contracting, and technology (chips and AI) – although venture capitalists tend to contribute much more to Republican campaigns. If the Democrats achieve a full victory, which is unlikely in the House of Representatives, it could signify a definitive shift of the economy toward an American version of communism, with a maximum share of the budget in the economy and uncontrollable growth of the national debt. This scenario could bring the "collapse of the dollar" and the decline of the U.S. as a superpower.
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