3 Ways the U.S. Election Could Affect Investors

Jul 10, 2024

As the 2024 U.S. election approaches, potential policy changes in taxes, tariffs and immigration could have important implications for your portfolio.

Lisa Shalett

Key Takeaways

  • In the event of a GOP victory in the U.S. election, a potential extension of 2017 tax cuts could contribute to higher interest rates that may weigh on corporate profits and stock valuations.
  • Tariffs could interrupt recent progress toward curbing inflation in the U.S., potentially exacerbating consumer pain from high prices.
  • Proposals to curb immigration could slow U.S. population gains that economists say have supported economic growth and disinflation.
  • Investors should consider adding portfolio exposure to business sectors such as energy, telecommunications and utilities, while focusing on investments that offer growth at a reasonable price. 

For months, polling data for the U.S. presidential election indicated a deadlocked race, but just recently, the Republican candidate has appeared to widen his lead against the Democratic incumbent.1


Bond markets are reacting to this shift, as implied Treasury bond volatility (measured by the ICE BofAML MOVE Index) spiked following the June 27 presidential debate. By contrast, major stock indices have continued to rise to new all-time highs, suggesting that equity markets may be shrugging off recent political developments. Morgan Stanley’s Global Investment Committee, however, believes investors cannot afford to be complacent about potential policy changes—especially at a time when the sustainability of U.S. debt is in question, the economy is slowing and the Federal Reserve is still seeking evidence that inflation is under control.


Current GOP proposals could have significant implications in three areas if Republicans prevail in the 2024 presidential and congressional elections.

  1. 1
    Tax Cuts

    If Republicans sweep the November election, the 2017 Tax Cuts and Jobs Act—which reduced corporate and individual tax rates, and expires at the end of 2025—may be extended and potentially enhanced. Morgan Stanley strategists project that the Act’s extension could add about $1.6 trillion to federal deficits over the next decade.


    Additional deficits are a critical issue with interest rates at their current levels, since the cost of servicing Treasury debt has nearly doubled over the past two years. As federal debts and deficits expand, inflation-adjusted interest rates rise, which would likely put pressure on U.S. corporate profits and equity valuations.

  2. 2

    Current GOP proposals include wide-ranging trade barriers, potentially against historic allies and partners like Mexico, Canada and the European Union.


    Historically, tariffs have driven a one-time jump in prices as well as a disruption in supply chains that distorts near-term growth. As a result, tariffs could interrupt recent progress toward curbing inflation, potentially exacerbating consumer pain and raising the prospect of “stagflation,” i.e., persistent inflation amid stagnant growth.

  3. 3

    Morgan Stanley Chief U.S. Economist Ellen Zentner and other researchers have noted that the surge of more than 3 million immigrants to the U.S. in 2022 and 2023 has had dual economic benefits: higher population growth and positive labor supply. This has helped drive higher GDP growth, stabilizing housing prices and lower wage costs, which has contributed to the reduction in inflation.


    Radical action on the border, as suggested in some proposals, could slow the growth of the U.S. working-age population, potentially weighing on the economy and reigniting wage-based inflation. 

Portfolio Implications

Considering all of these factors, portfolio adjustments may be in order.


Investors should think about adding what could be leaders in a Republican-sweep scenario, such as energy, telecoms and utilities.


Also, consider positioning portfolios defensively, with a focus on investments that offer growth at a reasonable price, in areas like health care, industrials, aerospace and defense, select power generation and grid infrastructure, financials and residential real-estate investment trusts (REITs).


Additional exposure to Japan, gold, hedge funds and investment-grade credit may also be beneficial.


This article is based on Lisa Shalett’s Global Investment Committee Weekly report from July 8, 2024, “Confronting an Unsustainable Mix.” Ask your Morgan Stanley Financial Advisor for a copy. Listen to the audiocast based on this report. 

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