Kamala Harris as the Democrat’s Presidential Nominee – How Will This Impact the Markets?

President Biden’s announcement that he will not be standing in November’s election had significant historic implications. It also re-energised the race to be the 47th President and reinvigorated the Democrats who were resigned to losing, as Donald Trump had been the favourite for some months to enter the White House again.  

For markets, truth be told, it initially caused barely a ripple as many expected the incumbent to step aside. But the implications in the months ahead are more pronounced, as Kamala Harris may bring with her positive momentum, as she chooses her Vice-President and highlights her opponent’s shortcomings. This could transform the debate and potentially lead to different tactics from Trump.  

Key Points 

• Kamala Harris energises the Democratic party, potentially influencing market dynamics with progressive policies similar to Biden’s. 

• Market reactions to Biden’s departure were minimal; significant impacts are expected as the election nears, shaped by Harris’s and Trump’s policies. 

• Market volatility may increase as the election approaches, with sector impacts varying based on the differing policies of Harris and Trump. 

Who is Kamala Harris? 

The new Democratic nominee could become the first female president in US history, the first Asian-American president – her mother was an immigrant to the US from India – and only the second Black president after Barack Obama.  

She and her younger sister were primarily raised by their Hindu single mother, embracing both their Indian heritage and Oakland’s Black culture in California. Harris struggled to appeal to voters in 2020 and has had low approval ratings during her tenure as vice president, finding it difficult to define herself on the national stage ^[1]. She has been a strong supporter of reproductive rights, and her diverse background has contributed to her appeal among various voter demographics. 

Contrasting Kamala Harris and Joe Biden: Political Ideologies and Leadership Styles 

The new nominee, Kamala Harris, has generally taken a low profile as the Vice-President under Joe Biden, with some disappointment that she has underperformed. She is a very different person from the current President with former more left-wing ideals but is in effect the continuity candidate with no major divergences on key issues. That said, she will pitch her arguments differently, having been seen to mature during her time in office. Individual freedoms could be a key theme over the next three months, while Harris will need to answer Trump’s incoming attack on immigration directly.  

Biden’s tenure, played out over 24 days, may harm his near-term ratings but could also enhance his long-term legacy. He has already been showered with accolades, including from those who ousted him. His fight against climate change, for American women’s freedom to make their own reproductive decisions, his multi-billion-dollar Inflation Reduction Act, and aid to Ukraine will likely stand out in the history books. However, the administration has an unpopular record and currently not a hugely ambitious domestic agenda.  

Evaluating Kamala Harris as a Presidential Contender Against Biden 

Evidently, Harris is younger than Biden so she benefits from a notable age advantage. This had been a major drawback for both Biden and Trump over four years ago when they were competing for the presidency in 2020. Now, Harris at 59 will emphasise her relative youth, being roughly two decades younger than the 78-year old Trump and 81-year old Biden. Her diversity could energise important segments of the population and the Democratic party’s coalition. She has also taken a stronger stance on liberal questions, like abortion and minority rights.  

Kamala Harris might be considered potentially weaker candidate than Biden as many believe her record in office has been poor and she has struggled to build a convincing public image with firm views on key issues. She also undertook an ill-fated presidential campaign in 2020 and had originally been talked about as one of the weakest candidates to take over from Biden. She is also seen as a creature of institutional politics, not a visionary or populist like her opponent.  

Polling Insights on Kamala Harris’s Electoral Prospects Against Donald Trump 

The most recent polls and prediction markets have seen a small narrowing of the advantage that Trump enjoyed with President Biden. Most polls now give him around a two-point lead over Harris. Interestingly, one survey found that more Democratic voters now feel strongly to vote than Republicans. The implied probability of a Harris victory had risen to 43% while the likelihood of a second Trump term fell but remained above 50% ^[2].  

This data will certainly change with just under 100 days to go until the November election day. Most experts believe there will be a “Harris honeymoon” as the media goes into overdrive with largely positive coverage of the new nominee. Whether this polling bump can extend into the autumn is the six-million dollar question.  

Kamala Harris’s Impact on the Markets 

As Kamala Harris emerges as the Democratic nominee, her policies and political stance are poised to influence market dynamics in significant ways. 

Kamala Harris’s Economic Policy Overview and Market Impact 

Kamala Harris’ key economic policies largely mirror President Biden’s economic blueprint on tax cuts for low and middle-income households, whilst putting up corporation taxes. Tariffs on a tenth of US imports are likely to stay and a limit on border crossings strictly enforced. Harris may be more strident than Biden on climate change, consumer protection and antitrust enforcement.  

Investors might anticipate potential gains in stocks in the first year of a Democratic Harris administration. Major indices like the tech-dominated Nasdaq-100 could see positive movement as the broader digital and AI (artificial intelligence) transformation continues with friendly fiscal policies. Environmental and green energy may benefit, potentially at the expense of fossil fuel industries. Improved economic stability, more stable geopolitics and reduced inflation fears typically result from a Democratic administration. That could mean less demand for safe haven assets like gold.  

Historical Market Reactions to Democratic Economic Policies 

Historically, equities have outperformed in the first year after a Democratic presidency ^[3]. Commodities are more mixed as geopolitical concerns subside and renewable energy is more in favour.  

Biden’s presidency began during the Covid-19 pandemic so there were major disruptions and successive recovery packages. Stock markets have thrived with tech leading the gains, initially as safe havens, and then on the AI technological revolution. This was helped by the administration’s stimulus and infrastructure plans. Gold prices fell in 2021 as the Fed signalled rate hikes which saw the dollar strengthen, before bullion turned higher, ultimately on central bank buying and global geopolitical uncertainty.  

Forecasting the Market Influence of Harris’s Candidacy 

Essentially, Harris does not have the time to propose a radically different agenda to her predecessor as we are less than 100 days to the election. That means she will portray herself as the candidate of continuity and stability.  

That said, the “Harris Honeymoon” might influence investor sentiment as she is seen as having more chance of winning against Trump than Biden. Positive media coverage and even an uplift in support for the departing President could buoy certain areas in markets.  

It might also imply the “Trump Trade” could take a hit as investors pull back on going all-in on a Trump victory. That means defence, infrastructure and energy stocks could see some selling. Key will be who controls the Senate as a Democrat Senate could curtail Trump 2.0 and see him focus on geopolitical issues rather than domestic ones.  

Investor Sentiment and Market Predictions Amid Harris’s Nomination 

In the near-term, the baked-in favourite Trump, may now have to double down on his campaign and tactics. This is especially true when considering his freshly announced running mate, JD Vance. That could mean Trump 2.0 is stronger than the first version, with increased inflationary tariffs and potentially less rate cuts by the Fed.  

If Harris’ nomination results in better polling ratings, there may be an easing in volatility in US bond markets. But seasonal challenges mount for stocks as we head into late July where the mid-year slump in risk assets typically starts to bite the most. Equity markets typically run relatively soft through August and especially September before rallying strongly into the final quarter of the year. 

Market Reactions to these Recent Major Announcements 

Immediate Market Reactions to Biden Stepping Down 

At the margin, the dollar and US Treasury yields opened fractionally weaker as it looked as though investors had been expecting President Biden to step out of the race. This price action was in part a nod to Trump re-election risk turning modestly lower. The bigger picture is the Fed rate cut story which remains negative for the dollar and ultimately that puts a cap to dollar gains in the short-term. 

Equity markets barely flinched with some of the Trump Trade pulling back. But in truth, there were minimal major moves as there are still a few months to go to polling day.  

Historical Market Behavior During Major Political Shifts 

Major political shifts normally bring with them risk-off type moves in markets, depending on the size of changes and shocks. Markets do not like uncertainty so if there is a power vacuum, then typically the dollar would find a bid, bonds would be bought so yields go lower and gold may come into demand. Stocks and cyclical, growth currencies like the Australian, New Zealand and Canadian dollar would likely be sold as more risky positions are exited.  

For example, George W Bush’s first presidency came in the aftermath of the dotcom bubble and the September 11 attacks. Inevitably, gold performed well as a safe haven asset during a time of high uncertainty. Stocks had mixed performance with crashes following the dotcom bubble burst and 2001 attacks, but recovered in later years.   

Donald Trump’s first presidency was initially unheralded by markets but saw business friendly policies focused on tax cuts, deregulation and trade policies. Equity markets benefited through increased trade tensions. Gold tended to perform well, reflecting those geopolitical concerns.  

Political Competition and Market Stability 

Implications of a Trump vs. Harris Presidential Race 

First and foremost, the presidential race has in many senses changed completely. It is now a 59-year-old female candidate versus a male, former president; a former prosecutor who will take on a convicted felon, a supposed agent of generational change up against an experienced near octogenarian. Those many different sub-stories instantly make the race to the White House more fascinating. 

That said, Harris still trails Trump slightly which means it is shaping up to be a tight race in November, reflecting deep partisan issues in American politics. Centrist voters in the key battleground swing states will be key. Of course, fortunes in the White House can always shift quickly, as we have seen in the past few weeks.  

Market Preferences: Predictability vs. Change 

Markets generally favor certainty, while most traders like volatility for its potential to stir price action. We have seen in the previous Trump administration how late-night tweets can ramp up volatility in numerous markets, from single company stocks to risk-on and risk-off type trades. In some ways, policy under Trump would be more predictable, and markets more comfortable, if there was some check on him from Congress. For instance, a really big dash for growth would be harder to pass. 

On the flip side, were Trump to win the Presidency and Congress, he could extend tax cuts and deregulation, and raise protectionism to new levels, which might positively impact the dollar and likely stocks too. A more unstable geopolitical environment may result which could also see buying of the greenback as a haven asset. But the US economy could then potentially weaken which could see pressure to seek more stimulus through a weaker dollar.  

Predictions on Market Stability Leading Up to the Election 

In fact, defining a Trump trade in forex markets is particularly difficult as he explicitly wants a weaker dollar, while the market consensus at present is that Trump 2.0 could lead to higher yields, greater uncertainty, and hence a stronger dollar.  

If there’s a lack of urgency about pricing in the risks of the next Trump administration, it’s because the Fed’s monetary policy is considered far more important by most experts. A likely rate cut in September drowns out potential fiscal expansions starting next year. 

Much could depend on the campaigning to come, as Trump may play increasingly to his core support and magnify some of his more populist policies. For example, that could result in more pressure on China and also US allies, Big Tech and green energy which would see selling in these markets ahead of the election. A pickup in volatility is then highly likely.  

Key Points for Investors and Economic Outlook 

The 2024 US election promises to be one of the most significant political events in recent history. With far-reaching consequences for domestic and global markets, the outcome of this election will be felt well beyond the borders of the United States. The change in Republican candidate has injected some two-sided risk into the result, after Trump was seen to be a stronger favourite when up against the now-former nominee President Biden. 

Ultimately, a Republican win generally means a more business-friendly approach with lower taxes and reduced regulation. The red side of the aisle is typically known as being more fiscally conservative with the dollar not performing as well. A Harris victory, against the odds at the moment, would likely see more government spending, higher taxes and an appreciating greenback.  

Critical Dates and Events Leading Up to the Election 

As the election approaches, the first important dates will be the announcement of Harris’ running mate for vice president, the deadline for this being 7 August ^[4]. Josh Shapiro is touted to be her first choice. Following this, the Democratic National Convention on 19 August will crown Kamala Harris as their presidential candidate, though she could receive this in a virtual vote by 1 August.  

The second television debate takes place on September 10. This is a week after Labor Day, and traditionally when Americans begin to pay attention to the election. Polls open on a Tuesday in early November, though early voting and mail-in ballot initiatives will mean many Americans will have already voted.  

Investors will be wise to look out for the first national polls, to see whether the Biden/Harris switch has impacted voters. Swing state polls will also be crucial, allied to Harris’ VP pick. In such a close race, the dollar, bond markets and certain stock market sectors may be influenced by whether Trump keeps or stretches his lead, or if Harris makes significant inroads. 

Conclusion 

Kamala Harris is primarily seen as a continuity candidate by markets who will offer very similar policies to her predecessor. Those essentially mirror Biden’s economic proposals on the big issues like taxes, trade and immigration. Her previous more progressive views may be curtailed, though climate change is a standout area of potentially more aggressive policies.  

Time is not on Harris’ side so markets would prefer a candidate of stability and continuity. However, as The Economist warns in its recent leader, “Be warned: Ms Harris is running a rushed operation. If her campaign starts to go awry, recriminations about her uncontested nomination will soon follow” ^[5].  

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