Republican debt plans may face a wall
Trump appears much more willing to take on incremental debt at a national level to fund investment. This would come in the form of domestic infrastructure spending (not just the Mexican wall), and is a positive for cyclical equities in the short term. With such a relaxed view on debt, markets are likely to question the sustainability of such policy, while Congress may oppose further lifting of the debt ceiling. Clinton has also proposed infrastructure spending via the National Infrastructure Plan, however at $27.5bn p.a. it is likely to be meaningfully lower than Trump’s ambitions.
Pivotal moment for climate change
It is a given that elections are won or lost on ‘it’s the economy stupid’; however, climate change has emerged as a galvanising issue in the 2016 contest. While Obama’s record on the environment is mixed, it stands as among his most important legacies when contextualised against a largely hostile Congress.
The Republican agenda is also broadly hostile to Obama’s incremental changes in the areas of clean air and clean water, with a strong vein of climate denial in the darker recesses of Republican thinking. With Clinton placing climate change at the heart of her campaign via a $9bn p.a. Energy Plan, there is clear blue water for the first time on the future direction of US environmental policy and particularly on whether the US will continue to be a leader on international climate policy and a voice for working towards a carbon constrained world.
The battle for US healthcare
Healthcare is a key issue for voters; the US spends over 17% of its GDP on it – the highest in the world by some distance. Both candidates have expressed concern over the cost of healthcare with Clinton being the most aggressive, especially on the prices of pharmaceutical drugs.
Obamacare has been divisive across both parties. Trump’s seven-point reform proposals, which include replacing Obamacare and reforming Medicaid and using fiscal incentives is likely to cost hundreds of billions and leave several tens of millions of people uninsured. The impact will be most acute for those individuals and families on low incomes. Mr. Trump’s more extreme plan to allow for drug imports to be sold in the US is unlikely to pass both houses of Congress, more so without bringing the FDA onside.
The impact to the wider sector is likely to be slightly negative as both candidates campaign aggressively at this late stage. In the medium to long-term, the sector remains in rude health, with the large cap companies showing strong cash flows, rising dividends and supported by robust balance sheets.
Wall Street versus Main Street
Trump has revealed plans for a major tax reform agenda, lowering corporate tax from 39% to 15% which would push net profit margins and equity prices higher. The proposed tiered 1%-5%-10%-15%1 tax plan has been estimated to reduce the corporate tax take by $2trn over next 10 years and cost $10-12trn overall2. Again, this is not particularly positive for US treasuries; however, equity markets are likely to receive a corporate tax cut of this magnitude very favourably.
Clinton’s main objective is to reduce the tax burden on middle-class and small businesses. She has proposed a short-term capital gains tax on those earning $400,000 or more to combat “quarterly capitalism” which would see investments held between one or two years being taxed at maximum income-tax rate of 39.6%3.
Immigration stances will drive wage inflation
Immigration is a divisive issue which is likely to impact sectors with large temporary workforce. Inflationary pressures are likely to arise from Trump’s anti-immigration policy, which would restrict the supply of cheap labour from Latin America and which may be exacerbated by greater on-shoring. There may be the opposite impact on immigration should Clinton implement her plan to increase US minimum wage to $15 an hour, in addition to increasing workers’ benefit structure. The outcome of both policies implies greater potential for wage inflation.
David Osfield, co-manager of the Amity International fund, EdenTree Investment Management