Article last updated 22 July 2025.
Americans go to the polls on 5 November to vote for their President, a major event in this bumper year of elections. In contrast with the foregone conclusion of the UK election, the race for the White House is highly uncertain. The contests for the Senate and House are very tight too. There are also big differences between the Republicans and Democrats in consequential policy areas, and no clear view on which outcome markets would prefer — that’s likely to vary from issue to issue. In this context, it doesn’t make sense to premise investment decisions on any single outcome — we need to be prepared for a range of possibilities.
In July Joe Biden gave up on his bid for re-election as Democratic President, following a disastrous performance in his televised debate with former President Donald Trump. The Democrats’ new candidate, current Vice-President Kamala Harris, has rekindled her party’s hopes that a Democrat will continue to hold the top job. Democrats are relieved by the journey opinion polls have taken since the debate, with Trump’s lead now eroded to the point where, at the time of writing, neither candidate has a clear advantage. However, much could change before the actual voting – particularly because Harris is a new candidate, about whom some voters won’t have made up their minds.
Meanwhile, polls are suggesting a split Congress. The Democrats have a slight edge when it comes to the House of Representatives (an estimated 61% chance of getting a majority), but the Republicans are favourites for the Senate (59% chance). In the past, markets have tended to prefer a split Congress, which can moderate the extremes in either party, but this outcome is far from guaranteed.
Economic differences
In the coming weeks, we’ll be publishing a report exploring the differences between the economic platforms of the two parties in more detail. In the meantime, it’s worth highlighting the contrast in a couple of areas to illustrate the extent of the uncertainty.
Take corporate tax, an issue we know had a major bearing on the stock market during Trump’s original term in office. In this area, markets are likely to prefer what the Republicans have to offer. Trump has proposed extending the corporate tax cuts he introduced in the 2017 Tax Cuts and Jobs Act (TCJA). The TCJA reduced the corporate tax rate significantly, from 35% to 21% (see chart). This boosted US equities.
Company earnings are likely to rise under the Republicans and fall under the Democrats as a result of their tax policies.
The S&P 500 index’s median tax rate could move in completely different directions depending on who is in the White House next year.
Source: LSEG, Rathbones
Trump’s campaign has also suggested going even further, cutting the corporate tax rate all the way to 15%. That could increase US firms’ post-tax earnings by around 8%. In contrast, the Democrat plans include increasing the headline corporate tax rate to 28% (and raising various minimum corporate taxes). This might reduce post-tax earnings by approximately 9%.
The picture is precisely the other way around on trade, with markets likely to be more sympathetic to the Democrats’ offer. It’s true that both parties broadly favour a tough stance on China and supporting domestic production of strategic goods — Biden has continued and extended the trade war Trump started when he was President.
Radical trade tariffs
Trump’s proposals for next steps are much more radical than the Democrats’. He has floated plans to hit all Chinese goods with a 60% tariff and impose a 10% ‘universal’ tariff on all other imports. This universal approach would be a dramatic escalation from the targeted measures used to date. It would take average US tariff rates to their highest since the 1940s, which would probably push inflation up and hurt economic growth.
It’s possible that Trump plans to use the threat of this universal tariff as a bargaining chip to extract concessions from other countries, given that he used similar negotiating ploys during his first term. So there’s a good chance that we never see the full universal tariff. Yet the threat alone suggests a willingness to go much further than his Democratic rival.
We’re only scratching the surface here — we’ll cover other important areas like the deficit, immigration and geopolitics in our full US election report. The most significant point is that the outcome of the US election remains highly uncertain, and neither candidate would be unambiguously positive or negative from an investor’s perspective. Against this backdrop, a diversified, long-term investment approach makes more sense than one that’s overly dependent on the roll of the election dice.
