UBS now assigns a 40% probability to Vice President Kamala Harris winning the 2024 presidential election with a split Congress, characterized by a Republican Senate and a Democratic House, the investment bank revealed in a recent report.
This outcome would likely result in minimal policy changes, leading to a relatively muted impact on financial markets.
While there could be an increase in taxes on higher-income households, corporate tax rates would likely remain unchanged, UBS notes.
The Harris administration would be compelled to rely heavily on executive actions and regulatory oversight, particularly in areas like mergers and acquisitions and environmental regulations. However, recent Supreme Court rulings might limit the extent of these executive powers.
UBS describes the market impact as "minimal," with ongoing regulatory pressures on industries like fossil fuels and financial services, but potential benefits for sectors focused on renewable energy and energy efficiency.
Beyond this, UBS also outlines other possible outcomes.
The bank sees a 35% probability of a "red sweep," where former President Donald Trump wins with Republican control of both the Senate and the House.
Here, UBS anticipates a continuation of the 2017 tax cuts and possibly even lower corporate tax rates. Equity markets might react positively to lighter regulation and the potential for increased M&A activity, but concerns about higher tariffs and inflation could temper this enthusiasm.
“Financials stand out as key potential beneficiaries in this scenario due to lighter regulation,” UBS notes.
A full Democratic sweep, with Harris in the White House and Democratic majorities in both chambers of Congress, is seen as an unlikely outcome, with a 15% probability.
UBS warns that such a scenario could be the most negative for equity markets due to higher corporate taxes and increased regulatory scrutiny, particularly in sectors like financial services and fossil fuels.
Lastly, UBS assigns a 10% chance to a scenario where Trump wins the presidency but faces a split Congress.