Analysis – Rising election talk from US executives highlights policy uncertainty by Reuters

By Medha Singh

(Reuters) – U.S. company executives are talking much more about the upcoming presidential election than they did four years ago, as a broader political rift between candidates Kamala Harris and Donald Trump raises questions about taxes, tariffs and pricing power.

In the company’s earnings calls during the two months ended Aug. 15, mentions of the “election” or “White House” were 34 percent higher than the corresponding period in 2020, according to an LSEG Workspace screen of the companies.

After energy and carbon, including renewables and electric vehicles, the Inflation Reduction Act (IRA), tariffs and trade were the policy topics most discussed by companies citing “elections” during second-quarter earnings, according to a separate analysis by FactSet. .

Sharper policy differences between the two candidates now than during the 2020 race could spur a more intense election discussion on earnings calls, said Sam Stovall, chief investment strategist at CFRA Research.

“The company’s profits could be materially affected depending on which party wins the White House and especially if it’s a blue wave or a red wave,” Stovall said.

Harris’ surprise pursuit at the top of the Democratic ticket after President Joe Biden dropped out of the race in late July added another layer of uncertainty, investors said.

“We have an idea of ​​what Trump is planning, but we have less clarity about Harris’ plan. We believe it will be somewhat of a continuation of the Biden administration, but a little different,” said Robert Pavlik, senior portfolio manager. manager at Dakota Wealth Management.

Republican candidate Trump has been vocal about his intention to impose trade restrictions, vowing to impose tariffs of 60 percent or higher on all Chinese goods. He also proposed the idea of ​​a universal 10% tariff.

Tariffs and taxes are most relevant to U.S. equity fundamentals, Citi Research said in a note, and higher corporate taxes pose a greater risk to earnings than tariffs.

“It all comes down to tax … that’s the killer for this market,” said David Wagner, portfolio manager at Aptus Capital Advisors.

“The new corporate tax rate is an instant cut to earnings growth. That’s why a lot of these companies are really starting to talk about it to get ahead of the curve.”

Harris is proposing to raise the corporate tax rate to 28 percent from 21 percent if he wins the November election.

Trump, who cut the rate to 21 percent from 35 percent during his tenure and implemented other tax cuts set to expire next year, has pledged to make the cuts permanent.

The closeness of the presidential race — an Aug. 2-7 Ipsos poll showed Harris leading Trump 42 percent to 37 percent — makes it difficult for companies to begin positioning for a particular outcome.

As for companies or individuals stocking up ahead of potential tariffs, U.S. chemical maker Dow Inc (NYSE: ) CEO James Fitterling said, “I don’t think anything has started yet … primarily because there all the uncertainty surrounding the election. and what policies will actually remain.”

However, some firms have set some plans on how they will respond to the election result. Cosmetics company Elf Beauty CEO Tarang Amin said the firm would raise prices as it shifts costs from higher tariffs if Trump wins.

“We don’t like the 60 percent tariff just because we think it’s a tax on American consumers,” Amin said.

Sharpie pen maker is moving some kitchen appliance production from China amid tariff uncertainty, CEO Chris Peterson told Reuters.

The outcome of the election may have big implications for companies in the energy and electric vehicle sectors.

On energy, Harris is expected to adhere to Biden’s policies and support his landmark IRA, while Trump is expected to cancel much of it.

Trump also said he would consider ending a $7,500 tax credit for electric vehicle purchases.

Their ability to advance policies will also depend on securing congressional support.

“The key is going to be who controls the House and the Senate, regardless of who the president is,” said Thomas Hayes, president and managing member of Great Hill Capital, LLC.