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JPMorgan warns of market risks tied to US election outcome

JPMorgan warns of market risks tied to US election outcome

GrafaGrafa2024/11/04 17:37
By:Liezl Gambe

Investment bank JPMorgan released a report warning that upcoming U.S. election results could trigger significant shifts in tax policy, government debt, and market stability. 

The analysis highlights the potential effects on personal taxes and bond yields depending on whether key 2017 Tax Cuts and Jobs Act (TCJA) provisions, set to expire in 2025, are extended. 

According to JPMorgan, if these provisions lapse, personal tax rates will rise, reducing after-tax income by 1.8% for U.S. households and by 3.1% for the top 1% of earners. 

The bank anticipates both parties may seek partial extensions, depending on the election’s outcome.

JPMorgan also predicts that the national deficit could increase under the proposals of either candidate, potentially affecting bond yields. 

"If all of the policy proposals from the campaign trail become reality (unlikely), the deficit could increase by over $1 trillion over the next 10 years under Kamala Harris, and by nearly $4 trillion under Donald Trump," the report states, noting bond yields might rise with a Republican win.

Debt concerns remain, but JPMorgan cautions that some fears may be overstated. 

"While we view the debt and deficit trajectory as a risk, we think some of the fear is misplaced," the report notes, suggesting the current yield environment offers investors another opportunity to invest in core bonds.

The report further discusses the potential for a contested election and delayed results. 

“It is difficult to say when we will know who won this election," JPMorgan warns, noting legal challenges may extend into the year-end. 

However, the analysts reassure that "equity market volatility tends to fall relatively quickly after the new composition of government is confirmed," advising investors to avoid letting election uncertainty disrupt long-term plans.

According to JPMorgan, a Trump victory could also attract retail investors to risk assets like Bitcoin and gold as part of a potential “debasement trade.”

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Disclaimer: The content of this article solely reflects the author's opinion and does not represent the platform in any capacity. This article is not intended to serve as a reference for making investment decisions.

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