The heated debate gives Wall Street some new details on key issues

By Saqib Iqbal Ahmed and Suzanne McGee

NEW YORK (Reuters) – Wall Street was left on edge as a closely watched debate between Republican Donald Trump and Democratic Vice President Kamala Harris on Tuesday night gave investors little clarity on key policy issues, even as stock markets betting swung in favor of Harris after the event.

In a combative debate, Trump and Harris clashed over everything from the economy to immigration and Trump’s legal troubles as each sought a campaign swing in what has been a closely fought race.

Their exchanges left investors with few new details on issues that could influence markets, including tariffs, taxes and regulations. Some observers, however, said Harris performed better than expected and could continue to weigh on some asset prices in the coming days if investors decide they have improved his chances of winning the White House.

“Neither of them made strong economic points, but overall Harris came out of it better than Trump,” said Eric Beyrich, portfolio manager at Sound Income Strategies in Westchester, New York. “Markets really don’t want flashy statements; they want clarity”.

Online prediction market PredictIt’s 2024 presidential general election market showed Harris’ chances improving to 56% from 53% before the debate, while Trump’s chances fell to 48% from 52%.

The reaction to asset prices was subdued. Stock futures eased as the debate progressed, with the S&P 500 E-minis down 0.5 percent early Wednesday in Asia and the Nasdaq 100 E-minis down 0.6 percent.

The dollar index, which measures the US currency’s strength against six major peers, fell 0.2 percent.

“I don’t think the debate will change many minds because voters remain sharply divided,” said Sonu Varghese, global macro strategist at the Carson Group. “The only indication is that Harris has advanced in the prediction markets, but that still keeps the race going. very close.”

Still, some investors believe even a small shift in the perception of the candidates could prove significant in a contest that could come down to tens of thousands of votes in a handful of states. The two candidates are effectively tied in the seven battleground states that could decide the election, according to polling averages compiled by the New York Times.

The debate “doesn’t appear to have a major impact on markets so far, which aligns with relatively low volatility expectations heading into the event,” said Shier Lee Lim, Lead FX and Macro Strategist for APAC at Convera. “That said, the debate could still prove to be a significant catalyst for shifting electoral probabilities.”

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While the presidential race is very much on the minds of investors, political concerns have recently joined more immediate market catalysts, including worries about a potential softening of the US economy and uncertainty about how deeply the Fed will need to to cut interest rates, investors said. The S&P 500 posted its biggest weekly percentage loss since March 2023 last week after a disappointing second jobs report, although the index is still up nearly 15% this year.

TAXES AND FEES

Trump has promised lower corporate taxes and a tougher stance on trade and tariffs. He also said a strong dollar is hurting the US, although some analysts believe his policies could boost inflation and ultimately support the currency.

Harris outlined plans last month to raise the corporate tax rate to 28 percent from 21 percent, a proposal that some on Wall Street believe could hurt corporate profits.

On Tuesday night, Harris attacked Trump’s plan to impose high tariffs on foreign goods — a proposal he likened to a sales tax on the middle class — as he laid out his plan to provide tax breaks to families and small businesses.

Trump defended his proposed tariffs and said they would not lead to higher prices for Americans.

The Chinese yuan, which has come under pressure in the US-China trade war during Trump’s tenure, has slipped against the dollar.

“Kamala Harris has managed to swing the odds in her favor, supporting a slight but overall improvement in risk appetite in the currency markets,” said Karl Schamotta, chief market strategist at Corpoy in Toronto.

Trump also criticized Harris for persistent inflation during the tenure of the Biden administration. Inflation, he said, “was a disaster for the people, for the middle class, for every class.”

However, economic policies could remain up in the air for a longer period.

“There hasn’t been much substantive discussion of policy,” said Varghese of the Carson Group. “Neither candidate advocated economic policies very different from those currently in place. Ultimately, many of the economic policies we see implemented next year will depend on the composition of the Senate and the House.”

(Reporting by Saqib Iqbal Ahmed and Suzanne McGee; Additional reporting by Rae Wee in Singapore; Editing by Ira Iosebashvili, Megan Davies and Shri Navaratnam)