Trump and Harris platforms both negative for S&P 500, says Citi By Investing.com

The platforms of both US presidential candidates Donald Trump and Kamala Harris are negative for US stocks, particularly in a “sweep” scenario, Citi strategists said in a note on Sunday.

According to the report, Harris’ policies are expected to be increasingly damaging than Trump’s, although both candidates’ platforms could present significant challenges.

Citi’s benchmark projections indicate that under a Trump “sweep” scenario — in which the former president wins the election and Republicans win control of both Houses of Congress — the fair value of the S&P 500 could fall 0% to 4%.

In contrast, a Harris “measure,” where Democrats control both the White House and Congress, could result in a more pronounced 3% to 6% decline in the index’s fair value.

One of the main differentiators between the two platforms is the tax policy. Harris’ proposal to raise corporate taxes from 21% to 28% would likely put significant downward pressure on corporate earnings, directly impacting stock prices. Citi estimates that this tax increase would contribute to a 6% reduction in earnings per share through 2026.

By comparison, Trump’s platform to extend the Tax Cuts and Jobs Act (TCJA) and cut corporate taxes from 21% to 15% would help maintain the current corporate tax structure, although it could slightly worsen the federal deficit.

Both platforms also include elements that contribute to scarcity concerns. Trump’s plans, including expanding the TCJA and a new set of tariffs, would add an estimated $4-5 trillion to the deficit over the next decade. Harris’ platform, with its tax credits and expanded social programs, is expected to have a smaller but still significant impact on the deficit of about $1.5-$2 trillion.

On the tariff front, Trump’s proposed 10 percent base tariff on all imports and a 60 percent tariff on Chinese imports could hurt American companies by raising costs and disrupting supply chains. Citi points out that these tariffs would lead to higher prices for consumers and squeeze profit margins for companies that depend on foreign goods, further burdening the market.

In a “divided Congress” scenario, Citi suggests most major risks to the S&P 500 would be mitigated. Legislative gridlock would likely limit the scope and impact of any policy changes, leaving the market relatively unscathed.

“Of course, as we move past the election, there may be more clarity on the incremental policy shift,” Citi strategists explain.

“The approach to federal spending continues to lurk in the background. Ongoing fiscal stimulus looks likely for now, but is more difficult to translate directly into index fundamentals.”

Overall, while both candidates’ platforms may present headwinds for the stock market, broader macroeconomic factors such as interest rates, Federal Reserve policies and AI tailwinds will remain the main drivers for stocks.

Still, investors should keep a close eye on the electoral landscape as it presents a potential “tail risk” to market performance.