Preparing Your Portfolio for the 2024 Election
As cliché as it sounds, anything is possible in the 2024 election. Current polling data — imperfect as it is — suggests that a divided government with a split Congress and clean sweeps by both parties are all in play.1 With such a wide range of possible outcomes, the potential for market volatility and policy-related sector impacts is high.
To help you plan for whichever party wins the White House and controls Congress, we’ve put together this playbook. We review how Kamala Harris’ and Donald Trump’s differing views on energy, defense, taxes, regulation, and trade/foreign policy could create policy-led opportunities — and suggest SPDR® ETFs to help you reposition portfolios.
Energy: Green Versus Black Gold
As vice president, Harris cast the tie-breaking vote for the Inflation Reduction Act (IRA) in the Senate in 2022, providing billions of dollars in grants, loans, and tax incentives to promote renewable energy, reduce the use of fossil fuels, and help communities affected by climate change.
If Democrats assume full control of the government, that push toward renewable energy would continue with clean energy refundable tax credits and an expansion of the IRA’s clean energy subsidies. Also, broad-based legislation or executive orders to transition away from fossil fuels could create tailwinds for clean energy manufacturing, sustainable infrastructure, and electric vehicles.
Republican control in Washington would likely end the Democrats’ greener agenda. In a Republican sweep scenario, it’s reasonable to expect to see renewed support for the legacy energy sector, curtailment of climate investments, and the elimination of tax credits for electric vehicles.
The potential for expanding the size and scope of US drilling auctions through executive order, or for repealing portions of the IRA, could impact the traditional energy sector. Oil & gas producers/servicers and large, integrated US energy giants could see upside potential, given broader regulatory support for exploration activities of oil, or black gold.
Democrats
- SPDR® S&P Kensho Clean Power ETF (CNRG): a modified equal-weighted exposure focused on firms innovating with clean power generation, including wind, solar, and geothermals
- SPDR® S&P Kensho Smart Mobility ETF (HAIL): a modified equal-weighted exposure focused on firms innovating with electric vehicles, autonomous vehicles, and advanced transport systems
Republicans
- Energy Select Sector SPDR® Fund (XLE): a market-cap weighted exposure of the Energy sector in the S&P 500
- SPDR® S&P Oil & Gas Exploration & Production ETF (XOP): a modified equal-weighted exposure focused on oil & gas production firms
Defense Spending: Bipartisan Support Increases
Given the numerous geopolitical conflicts around the globe and the ongoing tough rhetoric on China, there is likely to be bipartisan support for increased defense spending.
Under Democratic leadership, expect less protectionism and a greater focus on alliances and multilateral agreements. That means continued support for our allies currently in conflict.
Republicans will likely push global counterparts to increase their defense spending (i.e., less multilateral pan-regional support networks) and perhaps make another attempt to get NATO countries to spend more on defense.
Yet, under each leadership scenario, traditional and next generation defense companies look to benefit from additional government spending on national defense and border protection.
Democrats and Republicans
- SPDR® S&P Aerospace & Defense ETF (XAR): a modified equal-weighted exposure focused on the defense industry
- SPDR® S&P Kensho Future Security ETF (FITE): a modified equal-weighted exposure focused on firms innovating with defense industries, including cyber security, drones, and border protection
Tax Policy: Diametrically Opposed Positions
At first glance, it seems like one party wants to raise taxes, while the other wants to lower them. But in politics, nothing is that simple. There are devils in the details — many center around the 2017 Tax Cuts and Jobs Act (TCJA), which is set to expire at the end of 2025. The TCJA lowered the top personal tax rate from 39.6% to 37%and the top corporate tax rate from 35% to 21%.
If a Harris administration resets tax policy, the corporate tax rate could increase to 28% and the levy on firm stock buybacks could quadruple.2 While Harris plans to increase taxes on the highest earners, she has pledged not to raise taxes on people making less than $400,000 a year. She also plans to expand tax deductions for small businesses and to provide tax breaks for homebuilders and down payment assistance for first-time homebuyers.3
Sectors with more stable tax rates and limited buybacks may be less impacted by tax increases. Meanwhile, Harris’ support for the homebuilders industry could result in tailwinds from increased demand and incentives to create more inventory.
Trump supports extending the TCJA tax cuts and making some permanent. He’s also suggested the corporate tax rate could be lowered further to 15%.4
Sectors with high tax rates may see profitability increase amid lower broad corporate tax rates. Meanwhile, sectors with a high buyback rate could see an uptick in sentiment and profitability, from not having to hold back cash to pay higher taxes on their buybacks. Lower personal taxes could increase consumption, benefiting retail-oriented industries.
Democrats
- Consumer Staples Select Sector SPDR® Fund (XLP): a market-cap weighted exposure to the Consumer Staples sector in the S&P 500
- SPDR® S&P Homebuilders ETF (XHB): a modified equal-weighted exposure focused on homebuilders and housing retail firms
Republicans
- Communication Services Select Sector SPDR® Fund (XLC): a market-cap weighted exposure to the Communication Services sector in the S&P 500
- SPDR® S&P Retail ETF (XRT): a modified equal-weighted exposure focused on retail firms
Regulation: More Versus Less
The Biden-Harris administration finalized 203 "economically significant" regulations in their first 38 months in office, more than any of their six predecessors and 69% more than the former Trump-Pence administration.5
And momentum’s been building on the antitrust front, as the Justice Department is considering breaking up Alphabet Inc.’s Google following a court ruling. A Harris administration is likely to continue this regulatory viewpoint.
This increased regulatory focus and/or antitrust legislation could impact mega-cap tech conglomerates, potentially leading to growth opportunities for small innovative tech firms.
Meanwhile, on the campaign trail, Trump has pledged to eliminate 10 regulations for every new regulation, increasing a promise from his first term to eliminate two regulations for every new rule.6
Republicans also tend to enforce antitrust laws and review mergers less stringently than Democrats and favor less regulatory scrutiny for financial services firms.7 The relaxed oversight may extend to digital assets, as Trump has favored more crypto-friendly regulations. He also has plans to make the US the Bitcoin superpower of the world.8
With these potential policies, bank stocks could see tailwinds alongside exposures focused on digital assets and the ecosystem supporting them.
Democrats
- SPDR® NYSE Technology ETF (XNTK): an equal-weighted exposure of leading technology-related firms
- SPDR® Kensho New Economies Composite ETF (KOMP): a modified equal-weighted exposure focused on firms driving innovation across the entire economy
Republicans
- SPDR® S&P Bank ETF (KBE): a modified equal-weighted exposure focused on banking firms
- SPDR® Galaxy Digital Asset Ecosystem ETF (DECO): an actively managed strategy focused on companies that stand to benefit from the growing adoption of the blockchain and crypto asset industries
Trade/Foreign Policy: Different Hawkish Notes
Both Democratic and Republican platforms are hawkish on trade, but the details differ.
Whatever the Congressional makeup, a Harris administration is likely to maintain the status quo on trade tariffs. Safeguarding US intellectual property via tax credits, subsidies, or incentives — for example, the Creating Helpful Incentives to Produce Semiconductors (CHIPS) and Science Act — rather than relying exclusively on tariffs could lead to more coordination and coalitions among regional counterparts than a tariff-only approach, even if the policies are protectionist.
A more multilateral, pan-regional approach to trade means fewer headwinds for overseas markets than a resolute hawkish regime of tit-for-tat tariffs. Strategic US industries like semiconductors may benefit from receiving additional incentives and tax credits under a Harris administration.
Tariffs would be the main trade tool of a Trump administration. Trump has already threatened to raise tariffs 60% or higher on Chinese imports and 10% on all imports, as well as to enact reciprocal tariffs on countries that impose tariffs on US exports.9
Because he could raise tariffs through executive orders, Trump could implement these policies regardless of the Congressional makeup. In that case, more US-centric, domestically focused markets and service-based industries could perform well. At the same time, don’t be surprised by a lag in international exposures and those that rely on global supply chains, like transportation and industrial sectors.
Democrats
- SPDR® Portfolio S&P Developed World Ex-US ETF (SPDW): a market-cap weighted exposure of developed stocks outside of the US
- SPDR® S&P Semiconductors ETF (XSD): a modified equal-weighted exposure focused on semiconductor firms
Republicans
• SPDR® Portfolio S&P 600 Small Cap ETF (SPSM): a market cap-weighted exposure focused on US small-cap stocks
• SPDR® S&P Insurance ETF (KIE): a modified equal-weighted exposure focused on insurance firms
Fiscal Deficit and Gridlock on the Ballot?
No matter who wins the White House, expect a higher fiscal deficit, driven either by greater outlays in a Democratic sweep or lower taxes in a Republican sweep. And if the TCJA is extended, the deficit may increase by 0.3 to 0.5% by 2026.10
A wider deficit may spur additional central bank demand for gold as a reserve asset, a buying behavior trend that has increased for 14 consecutive years.
And if the elections result in a split Congress, expect gridlock and increased tensions as the debt increases. And gridlock around key fiscal decisions could weaken sentiment and spark short-term cross-asset volatility as it has in the past.
With this backdrop, gold may have tailwinds — even beyond what’s likely from falling rates and a weaker US dollar as the Federal Reserve embarks on its rate cutting cycle.
As a result, consider: SPDR® Gold Trust (GLD®) or the SPDR® Gold MiniShares® Trust (GLDM®).
Check out our quick reference guide for a summary of these investment ideas. And for the latest elections insights and help navigating near-term sentiment shifts, visit our 2024 Elections Insights Hub.