MW Whether you vote for Harris or Trump, it's a sure bet the stock market will thrive

By Peter Morici

Inflation could be a problem, but real growth and profits should be robust

American entrepreneurism and business leadership has created global giants including Microsoft, Alphabet, Meta Platforms and Nvidia.

Vice President Kamala Harris and former President Donald Trump have radically different views on how to manage the U.S. economy - but no matter who wins the presidential election in November, the U.S. stock market will thrive.

Consider the growth potential of the U.S. technology sector alone. Bain & Co. estimates that spending on artificial-intelligence equipment and services will rise to $1 trillion by 2027. This level of spending would represent 3% of projected U.S. GDP, and 23% of nonresidential investment in buildings, equipment and software.

Economists at J.P. Morgan and Goldman Sachs add that AI investments should raise U.S. labor productivity in the range of 1 percentage point a year.

AI and the decarbonization of energy systems, transportation and buildings will create and destroy jobs and usher in new opportunities for the U.S. to compete on the global stage. Americans are apprehensive about this change, but they only need look at other transformational technologies of the past - such as the mechanization of agriculture and industry, the advent of electricity and, more recently, the internet. All of these innovations boosted U.S. growth and employment as new occupations emerged for workers.

Moreover, American entrepreneurism and business leadership has created global giants including Microsoft $(MSFT)$, Alphabet $(GOOGL)$ $(GOOG)$, Meta Platforms $(META)$ and Nvidia $(NVDA)$. Soon, perhaps, OpenAI will join them on the public market. Their success reinforces the belief that capitalism and free markets are the world's beacon for a brighter future - and promise a "Second American Century."

Yet ordinary Americans caught in the clutches of disruption - displaced from jobs or raised in communities far from the centers of progress, in rusting factory towns of the Midwest and more remote areas of the South, West and Northeast - want stability and a share of the prosperity.

Harris, if elected, wants to further support programs that boost innovative industries including AI, electric vehicles and green energy, along with social programs to level up the struggling working and middle classes. Hers is an embrace of capitalism with "free and fair markets."

In a nutshell, Harris wants to double down on President Joe Biden's industrial policies by adding another $100 billion in investments in AI, semiconductors, solar, hydro, batteries and materials critical to U.S. national security - while also lifting established industrial communities that have been disrupted, as well as underrepresented groups.

Harris also intends to offer more help to working families with greater federal support for child care, enlarged child tax credits and expanded apprenticeship programs for people who aren't planning to attend college.

A Harris administration would pay for this by letting the benefits of the Tax Cut and Jobs Act of 2017 lapse for those earning more than $400,000; imposing a minimum corporate tax of 15% to align the U.S. with an international treaty mandating a floor under business taxes; and raising the nominal corporate tax rate to 28% from 21%.

Trump, meanwhile, promises to lower the U.S. corporate tax rate to 20%, and 15% for domestic manufacturers, which would make creating jobs in America more attractive. Trump would pay for this with import tariffs - 10% to 20% across the board (much higher for John Deere (DE) if it does take its manufacturing to Mexico), and 60% on Chinese-made goods. Trump also proposes an array of personal tax breaks such as for overtime pay, tips and Social Security payments.

The difference is that a Harris administration, like its predecessor, would orchestrate investments from Washington - giving out goodies to firms she deems most responsible, progressive and prounion. Basically, taxes on businesses and the wealthy would rise, with a lower burden for those that comply with her administration's industrial and social policy visions.

Trump would rely more on markets and let technological progress define the shifts in resources and employment.

Neither candidate proposes enough new revenue to fund their respective proposals, though Trump likely would bloat the federal deficit more than Harris. Also, Harris and Trump both would confront unfair competition from China, though more so with Trump.

Looking at the candidates' economic proposals, it's evident that relying on either industrial policies or lower business taxes can each have similar macroeconomic consequences.

After four decades of decline, manufacturing employment rose with stronger subsidy and tax support through the Obama, Trump and Biden years - free enterprise with an assist.

For investors, betting on the outcome of an election - especially one so closely contested - is a risky business. Suffice it to say, if Harris becomes president, then EV manufacturers like Tesla $(TSLA)$ and Rivian Automotive $(RIVN)$, EV-charging network operators such as ChargePoint Holdings $(CHPT)$ and Beam Global (BEEM), and solar stocks including First Solar $(FSLR)$ and SunRun $(RUN)$, as well as their suppliers, would all get a boost.

If Trump prevails, then legacy automakers still reliant on internal combustion engines would benefit, as would oil-and-gas stocks such as Baker Hughes $(BKR)$, Exxon Mobil $(XOM)$ and Occidental Petroleum $(OXY)$.

As for the broad U.S. stock market, it will prosper. With all the expected investment and fiscal stimulus, inflation could be a problem, but real growth and profits should be robust.

Peter Morici is an economist and emeritus business professor at the University of Maryland, and a national columnist.

More: The bull market is entering its 3rd year. Here's what history says will happen next.

Also read: How to make money on stocks that look ripe for 2024 tax-loss selling

-Peter Morici

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October 19, 2024 11:44 ET (15:44 GMT)

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