The winner’s winners

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The stories that matter on money and politics in the race for the White House

Good morning. As we write this on Tuesday afternoon US time, we know nothing about how the voting has gone. As you are reading it, as early as 1:30am on Wednesday, you may know everything, and will probably know something. There is a good chance things will still be utterly up in the air. We have decided not to write and rewrite late into the evening, partly out of deference to our desk editors (who will have a lot of news to edit) and partly out of habit. So we have neatly bisected the newsletter; you can read either half or both, depending where matters stand. See you on the other side, and email us: [email protected] and [email protected].  

If Trump wins, it is good for . . . 

• US stocks (but not as good as 2016). The key item is Trump’s proposal to cut the corporate tax rate from 21 per cent to 15 per cent. If enacted, this raises corporate profits, and therefore stock prices, more or less mechanically. In a Republican sweep of the White House and Congress, this effect could be meaningful.

• Bank stocks. As we have written, it is hard to pick winners and losers among industrial sectors in this election. Banks may be the exception. The Trump administration is likely to subject mergers (outside of technology) to less scrutiny. This will help banks such as Goldman Sachs and Lazard, with their big advisory units. As for commercial banks, bank regulation in the last Trump administration was relatively light-touch. Matt Kelley and his team at KBW note that when Trump moved up in the polls after the first assassination attempt and during his October surge in the polls, financial stocks outperformed meaningfully. 

• GSE stocks. Fannie Mae and Freddie Mac, the government-sponsored entities that guarantee and securitise mortgage loans, were placed under government conservatorship in 2008, and in 2012 it was declared that their profits would be “swept” into the Treasury. But shares in both entities have continued to trade on hopes that shareholders’ right to keep their profits might be restored. Trump is considered sympathetic to GSE investors, a group that has included his supporters John Paulson and Bill Ackman. A chart of Trump’s election odds and shares in Freddie Mac shows some recent correlation:

• Crypto. While both campaigns have tried to appeal to the crypto crowd, the Trump team is more enthusiastic. Bitcoin’s rise has loosely tracked Trump’s odds in betting markets recently:

If Harris wins, it is good for . . . 

• Bonds. The Wall Street consensus is that Trump is the candidate of larger deficits and higher inflation and, as a result, tighter monetary policy and higher interest rates. This drives Treasury yields up and, by increasing rate differentials with the rest of the world, supports the dollar. Harris, by contrast, represents the status quo. This theme has been exaggerated: the increase in yields in September and October did coincide with a rise in prediction market odds of a Trump victory, but also coincided with a run of strong economic news that would be expected to have a similar effect. That said, Harris is not expected to add as much to the US debt. Wharton’s budget model estimates that she will add $2tn to primary deficits over the next 10 years, versus Trump’s $4.1tn — and her number would be even lower in the (likely) scenario that her victory would coincide with a Republicans taking control of the Senate.

• Homebuilders. If the market is right that Harris is the candidate of lower Treasury yields, mortgages should get cheaper if she wins. This, and her focus on supply as the solution to the unaffordability of American housing, are positive for homebuilders.

• Mexico. The USMCA trade agreement between the US and Mexico and Canada is set to be renegotiated in 2026. Harris will probably try to crack down on Chinese tariff evasion through Mexico, but she is less likely than Trump to blow up the entire trade agreement. If the renegotiations can iron out some of the legal questions surrounding Mexico’s recent reforms, its moribund stock market might revive, too. 

• Emerging markets. If US bond yields are higher, that makes emerging market corporate and sovereign debt unattractive. If the dollar is stronger, developing country debts become harder to bear. If the dollar strengthens and Trump applies universal tariffs, import-dependent emerging markets, such as Nigeria, will also struggle to maintain their current account balances.

• Chinese markets. Trump hopes to restrict the flow of Chinese goods to the US. All else being equal, that would be bad for Chinese markets. A Trump win would almost certainly put downward pressure on the renminbi; Capital Economics estimates that the Chinese currency will start trading below its current trading band at 7.3 to the dollar in the immediate aftermath of a Trump win, and pressure from eventual tariffs could cause the People’s Bank of China to let the peg slip to 8. Rosenberg Research estimates that a 20 per cent increase in the effective rate on Chinese imports — below the 60 per cent that Trump has floated — will depress Chinese growth by as much as 20 basis points in 2025. The hit of tariffs to consumer confidence will probably disperse what animal spirits remain in the Chinese equity market, and push consumers back into bonds. A Harris administration would keep in place Biden’s Chinese tariffs and work to restrict Chinese technology access, but would not be as disastrous for the Chinese market.

(Armstrong and Reiter)

One good read

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