Investors are pondering the market implications of a possible Kamala Harris presidency, which could put burden on corporate profits through higher taxes while also weighing on consumer staples and boosting solar energy.
Harris's nomination is in focus this week at the Democratic convention after her late entry following President Joe Biden's withdrawal tightened the race against Republican candidate Donald Trump.
Investors’ views on markets are typically shaped by factors such as the economy's strength and the trajectory of interest rates but the question of how a Harris White House could approach policy, regulations and taxation looms large.
"She seems to be on a track to be more aggressive than the Biden administration on a lot of these consumer issues that go right to the market," said Frank Kelly, senior political strategist at investment firm DWS Group, citing Harris' recent economic proposals and her record as a U.S. senator and California attorney general.
On Monday, Harris proposed increasing the corporate tax rate to 28% from 21%, a plan her campaign characterized as a way to "ensure billionaires and big corporations pay their fair share."
The plan contrasts with Trump's record after he slashed the corporate tax rate to 21% from 35% as president, and as he seeks to make other tax breaks permanent.
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 bite into corporate profits. Each percentage point change in the statutory domestic corporate tax rate should shift S&P 500 earnings by slightly less than 1%, strategists at Goldman Sachs said.
"Anything that reduces 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 offsets."
Many of the proposals from both candidates would require approval from Congress, which is narrowly divided between Republicans and Democrats. Control of the House of Representatives and Senate will be in contention on Nov. 5.
Harris' tax proposal could face serious obstacles in a Congress that is divided or under Republican control. 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 the lead on the PredictIt politics betting platform.
Food, health care, solar stocks
Mounting expectations that Trump would beat Biden sparked a so-called Trump trade in U.S. stocks last month, lifting areas of the market seen as benefiting from tax cuts and regulatory easing, including shares of smaller U.S. companies and cryptocurrencies.
Harris outlined a plan last week to ban price gouging on food and groceries, which her campaign says aims to stop big corporations from exploiting consumers. Harris also is pushing to lower health care costs, with analysts expecting she could expand negotiating powers over prescription drug prices 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 weigh on consumer staples and health care stocks. Harris also pledged last week to introduce a child tax credit, however, which could lead to a "pretty meaningful boost to consumer spending," said Garrett Melson, portfolio strategist at Natixis Investment Managers Solutions.
Such spending particularly could benefit retailers and other consumer-related areas, he said. King Lip, chief strategist at BakerAvenue Wealth Management, expects clean-energy initiatives launched under Biden to continue under a Harris administration.
That could offer relief to shares of solar companies, which have faced headwinds from elevated U.S. interest rates, Lip said. The Invesco Solar ETF is down over 20% this year.