Harris ’well-positioned’ to capture Democratic nomination: UBS

Jovi Ho
5-min read

While Biden’s withdrawal resets the contest, the dynamics of the election “will not change as much as one might expect”.

What comes next after US President Joe Biden’s announcement that he is ending his re-election bid? With Biden’s endorsement, Vice-President Kamala Harris is “well-positioned” to capture the nomination, says Tan Min Lan, head of the Asia Pacific investment office at UBS Global Wealth Management.

However, she still must convince convention delegates, who are no longer bound to support Biden, that she is the individual best-positioned to defeat the Republican nominee in November.

“We expect her to emphasise the continuity of Biden’s platform, her service as vice-president, and her ability to appeal to women, younger voters and voters of color,” says Tan in a July 22 note.

Other candidates may emerge prior to the convention, including a handful of governors who could argue that their ratings are higher than the vice president’s. However, Harris has another point of leverage that may prove conclusive, says Tan.

“In the Biden campaign’s filings with the Federal Election Commission, she is included on the statement of organisation, which means that she will encounter fewer legal obstacles in the use of the Biden campaign war chest.”

Second, Tan does not expect a major shift in policy priorities from any of the top Democratic contenders on the issues of concern for investors. “The continuity would be clearest if Harris becomes the nominee. But we would not expect any Democratic nominee to deviate significantly from Biden’s focus on climate change, increasing scrutiny of anti-competitive practices by large businesses and maintaining pressure on China over its trade practices.”

Hence, while Biden’s withdrawal resets the contest, Tan believes the dynamics of the election “will not change as much as one might expect”. “The American electorate is highly polarised and most of Biden’s supporters will be reluctant to abandon the party’s nominee.”

Thirdly, Biden’s chances of re-election were undermined by his faltering debate performance on June 27, says Tan. “It is also possible that Trump’s defiant response to last week’s assassination attempt could consolidate the support of his base, and even win over some undecided voters — though this is not yet clear.”

Prior to Biden’s exit from the race, Tan’s team estimated a 60% chance that Trump retakes the White House, with a 45% probability of a “red sweep” for the Republicans. “We had also seen a 15% likelihood of a Trump presidency with a split Congress, a 30% probability of a Democratic win with a split Congress, and a 10% probability of a ‘blue sweep’.” Tan did not share new estimates.

Over the coming months, Tan expects both political parties to focus on turnout in November as the critical factor in the outcome. “Democrats must motivate younger voters. Republicans must encourage voters who prefer Trump to express that sentiment at the polls on election day.”

Tan says she is also reluctant to draw “too many conclusions” from historical polling of hypothetical match-ups between Trump and other Democratic contenders when Biden was the presumptive nominee. “It will take time for polls to reflect voter preferences in what are no longer hypothetical match-ups but rather real possibilities.”

Furthermore, Tan notes that there are still three-and-a-half months between now and election day on Nov 5.

“Biden’s unprecedented decision to withdraw from the race poses a significant challenge for the Democratic Party but also forces the GOP to devise a fresh campaign strategy against a new and younger opponent,” says Tan.

How should investors respond?

The outcome of the election could be consequential for investors, especially if either party wins control of both the White House and Congress, adds Tan.

A Trump victory — especially if supported by a Republican majority in Congress — would likely raise market expectations of tax cuts and lighter business regulation, while adding to concerns over higher trade tariffs.

Primary beneficiaries of regulatory changes could include the financial services sector, while higher tariffs on imports could harm US companies with global supply chains, says Tan.

Meanwhile, a Democratic administration would likely continue to support initiatives benefiting green energy, efficiency and electric vehicle makers, she adds.

“In the near term, we should expect some market volatility as investors digest the news. We have seen some rotation toward ‘red’ sectors and away from ‘blue’ ones in recent weeks as recent momentum has favoured the Republican party,” writes Tan. “That could at least partially reverse in the coming days as markets parse the latest developments.”

That said, investors should remember that US political outcomes are far from the largest driver of financial market returns or even sector performance. “Economic data and Fed rate cut expectations remain at least as important. In addition, much can still change ahead of November's ballot and a range of outcomes remain possible.”

Last week, Trump warned US Federal Reserve chair Jerome Powell not to cut US interest rates before November’s presidential vote. Speaking to Bloomberg, Trump said the central bank would “maybe” cut interest rates before the election on Nov 5, but added “it’s something that they know they shouldn’t be doing”.

On July 25, the US will reveal its latest GDP update, expected to show a rebound to 1.9% in 2Q2024 from 1.4% printed in 1Q2024. Then, the core Personal Consumption Expenditures (PCE) index will tell on July 26 whether price pressures further eased as the economic growth slightly improved.

Also, Tesla and Google — two of the Magnificent Seven companies — are due to report their quarterly earnings this week.

Tan advises investors against dramatic shifts in portfolio strategy based on their expectations or political preferences. “Instead, we recommend various strategies to manage the risks surrounding the election, including holding a well-diversified portfolio and considering structured investments with capital preservation or yield generation features.”

UBS’s base case is that the S&P 500 ends the year around 5,900, modestly higher than the current 5,505, and Tan thinks this “would hold in most political scenarios” — barring a Democratic sweep of power that leads to higher corporate taxes, or a scenario where Trump imposes trade tariffs that are as high as proposed in his campaign speeches.

“We consider either outcome unlikely at present. In addition, we believe the positive outlook for top US tech companies is likely to more than offset political uncertainty,” writes Tan.

Read more about Biden’s exit from the US Presidential race:

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