Polling Day in the US is now less than four months away. On November 5, tens of millions of Americans will decide who will be the President of the largest economy in the world. In a sign of unprecedented times, we cannot say for sure who will be on the ballot paper. After President Biden dramatically stepped down on Sunday and endorsed his Vice President, Kamala Harris, she now looks likely, but not certain, to go up against Donald Trump in what is set to be an historically important election.

Whoever takes on the mantle of ‘leader of the free world’ matters. They will steer the world’s eminent superpower through turbulent waters. New challenges like AI could mean massive boosts in productivity, but also enormous job losses. Conflicts in The Middle East and Europe could fizzle out – or explode with devastating economic and human costs.

Both parties have different visions for the ship of state and voters will decide which course they want the country to take. Whether America crashes on the rocks or sails to new heights is of global interest.  As the old adage goes, ‘when America sneezes, the world catches a cold.’

That means the result of the US election, apart from anything else, could have a direct result on you and your family, wherever you live. Household finances, investment portfolios and life plans can all be impacted by the stroke of a pen in Washington DC.

While we don’t have a crystal ball, we know what to expect from each party and what their plans might mean for the stock market, investors, pensions and the wider economy.

Who will win the US election?

Donald Trump is the clear frontrunner to win the presidential election. According to the most recent polls, Trump is ahead with voters in each of the key swing states he needs to take to win the election. Surveys of voters even indicate Trump could seize traditionally blue states from the Democrats, including Virginia, which, until recently, would have been bolted on for Biden.

Trump’s high ride in the polls has been boosted by the assassination attempt of the former President on July 13, but could yet prove to be a short-term bounce. By way of a comparison, in 1981 when then-President Ronald Reagan survived an attempt on his life, his ratings soared. Though he went on to win re-election in a landslide, observers continue to debate the impact of the shooting, which only resulted in a brief upswing for the Republican in the polls.

That said the potential impact of Trump’s near-miss in Pennsylvania should not be underestimated. What even his harshest critics have described as ‘courage under fire’ – his raising of his fist to demonstrate he was not seriously hurt – could come to be the defining image of the election. Speaking on CNN, Democrat partisan Van Jones told viewers ‘a bullet could not stop Trump but a virus stopped Biden’, referring to the President’s recent Covid diagnosis.

The Biden administration is also suffering as a result of perceptions he has not been sufficiently tough at the USA’s southern border, where record numbers of people have crossed in recent months and years. Famously, border control was a central plank of the Trump campaign in 2016 and continues to play a big role in his 2024 re-election bid as he seeks to capitalise on the crisis. It remains to be seen whether likely Democrat candidate Kamala Harris will emerge tarred with her boss’s record or be perceived as a fresh face. 

Trump’s chances may also have been bolstered by a sudden and unexpected tilt by Silicon Valley in the Republican candidate’s direction. The tech giants have traditionally been associated with the Democrat Party, but in recent weeks big donors out of San Francisco have opened their wallets to the Trump campaign. A number of big-name billionaires, including Marc Andreessen, Ben Horowitz, and David Sacks have joined longtime maverick Peter Thiel and his circle to publicly back the former President. They have been joined by Tesla and Space X CEO Elon Musk, who is understood to have donated to the Trump campaign, before publicly announcing his support for Trump in a post on X.

And in what seems like an unlikely feat of coalition building, the billionaires might be throwing in with the unions – or at least some of them. Trump’s VP pick, J.D Vance appears to be a bridge between organised labour and billionaires. The Hillbilly Elegy author and Ohio Senator was praised at the Republican National Convention by the President of the Teamsters Union for his apparent support for American workers. It comes after a career partly spent in Silicon Valley as a venture capitalist. While it remains unlikely the Teamsters, who boast almost 2 million members, will ultimately endorse Trump – the Republican party’s attempt to build a broad coalition is a statement of intent and a threat to Biden’s re-election bid.

All that said, Trump remains a deeply divisive figure who inspires both fierce loyalty among his core supporters and intense opposition from his detractors. While polarising figures often have the advantage of a strong base, they can also inspire their opponents to turn out in force on election day to hand them a defeat. In the 2020 election, Trump won 10 million more votes than in 2016 – and he still lost, because Biden won a record 81 million votes. That’s 15 million more than Hillary Clinton managed. That high turnout is partly attributable to a cohort of voters who wanted to dump Trump. According to the latest polls, Trump continues to have a negative approval rating, with the latest FiveThirtyEight average indicating just 41.5 per cent approve of the former President.

But in the land of the blind, the one-eyed man is king. Trump has a clear lead over likely rival Kamala Harris according to opinion polls – though a shorter lead than he had over Joe Biden. The latest polling averages show a 2 per cent lead for the Republican candidate nationally, which in US elections where victors are decided by the smallest of margins, is not insubstantial. However, observers should note this could become a rapidly changing picture, as Harris emerges from the relative obscurity of the Vice Presidency to become more visible to the American public as she launches her election campaign.

 Though the American economy appears to be on the up, the old moniker “It’s the economy, stupid” may no longer have a place in the canon of received wisdom. Voters are increasingly occupied with social and cultural concerns and are interested in what are known as valence issues.

That means as well as voting for policies, voters are also concerned about competence. And perceptions around Joe Biden’s ability to do the job of President has come under focus after a televised debate performance which ultimately led to him stepping down. Kamala Harris, who is younger than Donald Trump and can boast of an impressive career in law, may benefit from being seen as a more competent leader.

Why did Biden pull out of the race?

On Wednesday rumours were swirling that the beleaguered Biden could be forced to make the unprecedented move of pulling out of the Presidential race just a few short months ahead of polling day. As reported by Axios, senior Democrats believed the President would withdraw his candidacy as soon as the weekend, as a result of pressure being piled on by colleagues who believe he had become a liability for Democrats across the country.

 Biden ultimately stepped down on Sunday, after reports that friends and donors told the President he could no longer beat Trump, as questions over his mental acuity came to dominate the headlines. The party also feared the President’s unpopularity could have a knock-on effect ‘down ticket’, impacting lawmakers across the country who are also up for election on November 5. Biden’s candidacy, his allies feared, would result in a Republican landslide not just in the Presidential race, but in those House and Senate seats up for election on the same day, too.

After Biden endorsed Kamala Harris, and was joined by a raft of big-name Democrats in so doing, she looks like the bolted-on favourite to pick up the mantle for the party. But conspicuous by his absence in the love-in, former President Obama and his allies could yet throw a spanner in the works at the upcoming Democratic National Convention, where they appear to be keen for an open convention.

What the US election could mean for the economy

Although US Presidential elections aren’t fought on manifestos, as with European Parliamentary elections, candidates do set out broad policy platforms which indicate how they intend to govern if elected. And although Joe Biden has now stepped down, it is unlikely – but not impossible – that with around 100 days to go, presumptive nominee Harris would break wildly with his expressed views and platform.

Both party platforms emphasise the need to erect barriers against Chinese goods. For both reasons of foreign policy interest and in an attempt to win voters in crucial ‘Rust Belt’ swing states, the candidates are pledging tariffs on Chinese exports like EVs and rolled steel. And despite loud disagreements over social security programs like Medicare and Medicaid, both parties support the continued funding of the welfare programmes – Trump breaking from Republican convention with his support for what his party had historically derided as ‘handouts.’ And both parties agree (mostly) that too many people are entering the US illegally through the southern border – not an economic policy per se but taking action would mean choking off a large supply of labour, potentially increasing wages, but also prices for consumers.

That said, there are plenty of disagreements between the two parties, perhaps nowhere more than on the question of taxation. During Trump’s tenure as President, he instituted what he characterised as ‘historic’ tax cuts which he credits for the growing economy he oversaw. Trump has pledged to renew those cuts, which are set to expire in 2025, and have been estimated to cost the Treasury multiple trillions of dollars.  

Trump is also reportedly mulling over slashing the USA’s corporate tax rate to 15 per cent, which would make it among the lowest in the G20 group of nations. This would mean a reduced tax burden for American businesses. Critics warn the impact of this kind of cut would be disproportionately enjoyed by the biggest companies.  It is a proposal designed to incentivise businesses to either expand their American operations or relocate to the country if they are not already based in the US. Though the policy is estimated to cost more than $600 billion in lost revenue, the theory is that sum would be made up and more by the investment and economic activity the policy helps to stimulate. It might also go some way toward explaining why many of the Democrat’s biggest donors are keeping their wallets zipped.

On the other hand, President Biden has pledged to hike some taxes if he is re-elected, saying his focus will be on high earners and large corporations. Biden pledged to raise the corporation tax rate to 28 per cent and has pledged to increase income tax for high earners. Biden says his plan would mean no increase in income tax for anyone earning under $400,000 per year and that he would cut the average tax bill for low and middle-income Americans. He has also set his sights on so-called tax loopholes, such as the carried interest loophole, which is estimated to have shielded $1 trillion in value from the tax man since the year 2000. It is unclear if his successor as the Democrat candidate will carry these policies forward.

The parties also differ on energy policy, with Trump pledging to issue new oil and gas licenses while Biden is more cautious about extracting more fossil fuels. As President, Donald Trump rolled back many regulations which were restraining the expansion of gas and oil extraction – and issued licenses for major projects like the Keystone XL pipeline – a project Biden killed by executive order upon assuming office. While green energy may well be the future, increased and immediate access to fossil fuels will likely reduce fuel bills in the short term and could bode well for those with an interest in the sector. Critics would argue it kicks the can down the road and delays the imperative for the US to take strong action on climate change and transition toward renewable energies.

Unfortunately, US elections don’t come with detailed policy documents and costings breakdowns. They are contests between different vibes – with Trump signalling low taxes and high spending, and Democrats pledging higher taxes and even higher spending.

Does the US election present an investment opportunity?

The markets are increasingly betting on a Trump victory, and the strengthening of the dollar appears to signal, analysts say. ING says that if these bets continue the victory of the Republican candidate will have a limited impact on markets, as the event will have already been priced in.

According to ABC, the campaign has already presented opportunities – notably after the first Presidential debate which resulted in a big sell-off in the bond market. The outlet reported traders are betting the US government will issue billions in new bonds if Trump wins – which they consider likely – and have gotten ahead of the game. Key to the equation is the expectation that further tax cuts will fuel inflation, resulting in higher interest rates, and more bonds being dumped.

While some fear that a trade war with China, which Trump appears to be prosecuting marginally more fiercely than Biden, could damage the economy – The Morning Star points out that previous warnings of gloom fell flat. Though in contrast to some expectations that the election result might be a damp squib in stock market terms – it warned readers to expect some volatility in a market they characterised as having been ‘too calm.’

However, it should be noted policies don’t always have primacy in terms of their impact on stocks. While Trump pursued the extraction of fossil fuels with a vigour Biden did not – shares of American energy companies did better under the Biden administration – largely as a result of geopolitical developments. And ironically, as USBank reports, renewable firms performed better on the stock market during Trump’s reign.

Though many analysts argue the impact of a Trump win is already being priced in to the markets, events in recent weeks, his near death at the hands of an assassin in Pennsylvania, the dramatic resignation as candidate by Biden, and the disastrous televised debate, demonstrate there could yet be unexpected turns and volatility to come.

How will the US election impact me?

The US election is still more than three months away. In British political terms, that’s an eternity – but in the gruelling year’s long marathon that is an American Presidential contest, it is just around the corner. At the moment, Trump is the odds-on favourite to win, with his presumptive opponent Kamala Harris trailing.

However, we can’t say for certain what will happen if either candidate wins. As Mike Tyson said, everyone has a plan until they get punched in the face. And for a President that can be a global pandemic or a war in Europe. But what we can say is likely is that neither candidate will tackle America’s ballooning debt and deficit. Democrat plans involve increasing spending to fund expensive pledges like abolishing student loan debt, while Trump would implement costly tax cuts.

That said – one stock to watch will be Trump’s Truth Social. Derided as a meme stock and roundly bashed as being overvalued –perhaps rightly – if Trump emerges victorious the platform will de facto become the premiere medium for Presidential communications, and could see its share price benefit as a result.