As Democrats gather, investors are assessing the market impact of the Harris administration

By Lewis Krauskopf

NEW YORK (Reuters) – Investors are grappling with the market implications of a possible Kamala Harris presidential administration, which could pressure corporate profits through higher taxes while weighing on consumer staples and boosting solar energy.

Harris’ nomination is in the spotlight this week at the Democratic convention after her late entry after President Joe Biden’s withdrawal tightened the race against Republican nominee Donald Trump.

Investors’ views on markets are typically shaped by factors such as the strength of the economy and the trajectory of interest rates, but the question of how a Harris White House might approach policy, regulation and taxation looms large.

“It looks like she’s on track to be more aggressive than the Biden administration on a lot of these consumer issues that go straight to the market,” said Frank Kelly, senior political strategist at investment firm DWS Group, citing Harris’ recent economic proposals . and her record as a US Senator and California Attorney General.

On Monday, Harris proposed raising the corporate tax rate to 28 percent from 21 percent, a plan her campaign characterized as a way to “make sure billionaires and big corporations pay their fair share.”

The plan contrasts with Trump’s record, after he cut the corporate tax rate to 21 percent from 35 percent as president and seeks to enact other tax cuts.

A higher tax rate would help reduce the U.S. budget deficit by $1 trillion over the next decade, according to the nonpartisan Committee for a Responsible Federal Budget, addressing an issue that has worried some investors.

Higher taxes could also hurt corporate profits. Each percentage change in the domestic corporate tax rate should change S&P 500 earnings by just under 1 percent, strategists at Goldman Sachs said.

“Any cut in earnings should … have a negative impact on the stock market,” said Peter Tuz, president of Chase Investment Counsel. However, “until you see the proposal, there may be various trade-offs.”

Many of both candidates’ proposals would require approval from Congress, which is narrowly divided between Republicans and Democrats. Control of the House of Representatives and the Senate will be contested on November 5.

Harris’ tax proposal could face serious obstacles in a divided or Republican-controlled Congress.

Harris and Trump are locked in a tight presidential race that will likely be decided in a handful of battleground states, polls show. Harris in recent weeks has taken over

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on the political betting platform PredictIt.

FOOD, HEALTH, SOLAR STOCKS

Rising expectations that Trump would defeat Biden sparked a so-called Trump trade in US stocks last month, lifting areas of the market seen as benefiting from tax cuts and regulatory easing, including stocks of smaller US companies and cryptocurrencies .

Harris last week outlined a plan to ban food and grocery price gouging, which her campaign says is aimed at preventing big corporations from exploiting consumers.

Harris is also pushing to lower health care costs, with analysts expecting she could expand the prescription drug price bargaining powers enacted during the Biden administration.

Lori Calvasina, head of global equity strategy research at RBC Capital Markets, said in a note this week that the proposals could affect consumer staples and health care stocks.

Harris also pledged last week to introduce a child tax credit, which could lead to a “fairly significant increase in consumer spending,” said Garrett Melson, portfolio strategist at Natixis Investment Managers Solutions.

Such spending could particularly benefit retailers and other consumer-related areas, he said.

King Lip, chief strategist at BakerAvenue Wealth Management, expects the clean energy initiatives launched under Biden to continue under the Harris administration.

That could provide some relief to shares of solar companies, which have faced headwinds from high U.S. interest rates, Lip said. The Invesco Solar ETF is down more than 20% this year.

(Reporting by Lewis Krauskopf; Editing by Ira Iosebashvili and Rod Nickel)