Race to the Finish

A second Trump presidency could mean lower taxes, higher tariffs, a more American-first agenda, and less regulation than a first Harris term.

Corporate tax reductions were made permanent in the 2017 Tax Cuts and Jobs Act (TCJA) but the marginal tax rates on individuals, the exemption for estate taxes, and the amount individuals can deduct for state and local taxes have sunset provisions that start in 2025. Making the sunset provisions permanent could cost over $3.5 trillion according to the Congressional Budget Office (CBO) and the Joint Committee on Taxation.

Lower personal taxes should be beneficial for much of the Consumer Discretionary sector, but to the degree that adding to the nation’s $35 trillion in debt leads to higher interest rates, it could also weigh on sectors investors often turn to as bond proxies for income generation.

Residential real estate in high tax areas would likely benefit from a reversal in the $10,000 state and local tax (SALT) limit while a drop in the standard deduction would be felt more by those with lower itemized deductions. This could lead to geographical dispersion in discretionary income and spending.

Higher interest rates could also raise the cost structure of renewable energy projects and some consumer purchases that require financing. That said, inflation has come down, the Fed is about to start lowering interest rates, and 30-year mortgage rates probably peaked in October 2023, in our view.

Renewed trade tensions could speed up onshoring and domestic manufacturing, but it could also undermine demand for transportation fuels through reduced container traffic into ports and shorter trucking routes intermodally. Former President Trump has been vocal on the campaign trail about bringing a resolution to the Ukraine-Russia conflict. If a resolution did take place, it could lead to lower oil and gas prices through reduced trade frictions and distortions.

Domestically, a second Trump administration would likely be supportive of the fossil fuel industry, energy independence and transitioning to electric vehicles at a slower pace. However, it could take years to build out new oil and gas pipelines and LNG infrastructure. Policy uncertainty on renewable energy investments would likely rise but Republicans may not be too eager to reverse a push towards green factories and mining as more than 75% of the money flowing from these Biden era initiatives has been into GOP leaning districts. A lighter regulatory touch in a second Trump term could help restore the climate for deal-making and M&A activity.

No matter who wins in November, US defense contractors should benefit from the depletion of hardware and munitions resulting from NATO’s support for Ukraine and renewed efforts by European nations to build their defenses. A second Trump administration may apply more pressure on US allies to boost and maintain their readiness while the Biden-Harris administration has shown more willingness to support Ukraine in recent budget negotiations.

Major healthcare legislation is not likely to happen with either candidate, given budget constraints and the recency of past initiatives. Medical equipment / life science tools are largely removed from election risk, in our view. The Inflation Reduction Act (IRA) allows for a growing number of drug prices to be negotiated and a Harris administration may be more aggressive in doing so. Meanwhile, healthcare services are largely a domestic industry that should have little exposure to potentially higher tariffs under a second Trump administration. Outside of the pharmaceutical industry, healthcare stocks have tended to perform well in election years.