With less than three months before Election Day, the race for U.S. presidency is heating up.

Every election brings the potential for unknown outcomes and volatility. However, this cycle has already had more than its share—from a debate performance by President Biden widely viewed as so disastrous that many called for him to step aside as a candidate, ultimately resulting in his doing just that on July 21, to the recent despicable attempt on former President Trump’s life.

Our thoughts go out to the former president, his family, and to the families of the bystanders who were horrifically killed and injured in the senseless shooting.

The results in November could have myriad impacts on the U.S. consumer, various industries, and the stock market in general. With the House of Representatives and the U.S. Senate up for grabs with slim majorities, and recent presidential elections resulting in narrow margins of victory, making investment decisions based on an outcome is difficult and, arguably, even imprudent.

Further complicating matters, certain proposals offered by each candidate would require a majority vote in both houses of Congress, while other actions are dependent only on who wins the presidency.

We are not making investment decisions based on expectations for who will win in November. But, like many, we’re following events closely.

In this blog post, we summarize some of the potentially material issues we’re watching.

Where the Parties Seem to Agree

Big Tech

In recent years, both the Republicans and Democrats have been, at times, anti-big tech. For example, both President Biden and former President Trump have attacked Section 230 of the Communications Decency Act of 1996, which provides limited federal immunity for content on social media platforms. Any elimination of Section 230 could greatly change social media platforms' ability to exist as currently designed.

Additionally, both parties have raised antitrust concerns related to these mega-cap companies. While Trump's concerns were more verbal in nature, the Federal Trade Commission’s 21-month delay of Microsoft’s acquisition of Activision Blizzard under Biden’s administration was a more substantive example of anti-trust concerns. We expect to hear continued "Break up big tech!" proclamations from both parties in coming years. Any resulting actions could have material consequences.

Drug Pricing

Both parties have also consistently pledged to lower drug prices. Often, pharmacy benefit managers (PBMs) have been the focus of attacks and of congressional hearings. The current administration's Inflation Reduction Act (IRA) contains several provisions attempting to lower drug prices, including giving the federal government the authority to negotiate Medicare prices for a number of drugs, starting in 2026. We expect continued proposals to lower drug prices and potentially modify the PBM model from both parties.

https://www.kff.org/health-costs/press-release/3-charts-about-drug-prices-in-the-united-states/

Tariffs

Under both the Trump and Biden administrations, tariffs have been used as a way of battling anti-competitive trade tactics by other countries. The Trump administration imposed new tariffs on many Chinese goods, as well as on steel and aluminum from various countries. The Biden administration kept in place and expanded the Chinese tariffs in particular, while easing certain tariffs on other countries.   Although the inflationary and overall economic impacts of these tariffs are the topics of much debate, both parties’ recent predilection for tariffs as a trade policy could have material impact on various industries.

Major Bones of Contention

Taxes

One of the most contentious topics that must be addressed no matter who wins the presidency is the impending expiration of the Trump tax cuts at the end of 2025. The 2017 Tax Cuts and Jobs Act (TCJA) included a number of items that expire and will most likely lead to much debate as expiration nears. These include:

• Higher standard deduction
• Lower marginal tax rates
• State and local taxes (SALT) deduction limitation
• Higher estate tax exemption

https://taxfoundation.org/research/all/federal/2025-tax-reform-options-tax-cuts-and-jobs-act/

Absent a GOP sweep and thus a likely extension, we could see material changes to some or all of the aforementioned items from the TCJA. Additionally, while the corporate tax rate of 21% enacted under the Trump administration does not expire, each party has dramatically different views of where that rate should go. Changes to these policies could have significant effects on both consumers and corporations.

Health Insurance Subsidies

Both the American Rescue Plan Act in 2021 and the IRA in 2022 included subsidies which boosted Affordable Care Act (ACA) enrollment by millions of insureds. These also expire at the end of 2025. The elimination of the subsidies would not only impact insureds, but also healthcare organizations benefiting from increased enrollment. However, despite these being enacted during a Democrat administration, many of the beneficiaries reside in red states and the subsidies are reportedly popular among Republicans surveyed.

Clean Energy Subsidies

The IRA also included clean energy subsidies, which have spurred billions of dollars of investments in projects around the country. Many of these projects are still in the planning stages, and any reversal of the IRA could have meaningful implications on regions of the country and certain companies. However, much as with the ACA subsidies described above, the majority of these projects are slated to benefit Republican majority states. According to a February 2024 Wall Street Journal article, "More than three-quarters of these factory and mining investments will go to congressional districts held by Republicans."

https://bcse.org/15-best-in-class-inflation-reduction-act-trackers-resources/

In the coming months, we will continue to closely monitor these and other developments that could impact certain industries and markets. Nevertheless, our investment strategy remains grounded in thorough research and analysis, which we rely on to navigate potential challenges and opportunities.

Stay tuned for our next blog post, where we will delve into the potential impacts of the election on banking regulation and what it means for the industry.

For more insights, including our near-term outlook for the markets and economy, read our 2Q 2024 Commentary.