As the US presidential election approaches, investment experts are closely monitoring the policy positions of the two candidates and their potential market impact. Both Trump and Harris' victories could bring significant market volatility, especially Trump's victory could bring the possibility of Elon Musk's involvement in government work, as well as his proposed plan to cut the $2 trillion federal budget. Piper Sandler &  Co. has listed the top 100 stocks that may be most affected by this budget cut, including heavyweight companies such as Boeing (BA. US) and General Dynamics (GD. US). This plan has raised concerns among investors, especially those companies that rely on federal funds such as Moderna (MRNA. US), FedEx (FDX. US), Sivis Health (CVS. US), and Honeywell (HON. US).
The budget cuts proposed by Trump exceed Congress' annual spending on government agency operations, including defense, which could lead to cuts in key social safety net programs such as Medicare, Medicaid, Social Security, and veterans' benefits. Meanwhile, if the Republican Party wins in increasing defense spending, stocks of some aerospace and defense companies may rise.
On the other hand, Harris' victory may bring encouragement to electric vehicle manufacturers such as Tesla (TSLA. US), Rivian (RIVN. US), and Lucid (LCID. US), while her plans to stimulate the real estate market may also provide a boost to home builders. Two indices tracked by Goldman Sachs show that the performance of investment baskets related to Trump's victory has been steadily rising since late September, but now it is beginning to show a downward trend again. Meanwhile, the performance of investment baskets related to Harris' victory is on the rise.
Investors are cautious about buying and selling stocks linked to certain outcomes during the election period, despite the stock market performing differently than before, with stock indices approaching historical highs and the Chicago Board Options Exchange Volatility Index (VIX) at relatively low levels. Citigroup strategists pointed out that the performance of the stock market in this election cycle is different from before, and typical de risking has not occurred.
Once Trump wins, Wall Street analysts point out that companies with higher incomes in China are worth paying attention to, especially chip manufacturers such as Nvidia (NVDA. US), Broadcom (AVGO. US), and Qualcomm (QCOM. US). Oil, gas, and traditional energy companies are seen as potential beneficiaries, such as Baker Hughes (BKR. US), ExxonMobil (XOM. US), and ConocoPhillips (COP. US).
Trump's Budget Reduction Plan: Ambitious but Challenging
It is reported that at Trump's Madison Square Garden rally on October 27th, Elon Musk proposed an unprecedented budget cutting plan with a target of $2 trillion. Although it may sound easy, it is difficult to implement, even for the world's richest man Musk. Trump has stated that if he is re elected, he will appoint Musk to lead the Government Efficiency Committee. However, Musk's companies, including Tesla and SpaceX, hold federal contracts worth billions of dollars and benefit from government electric vehicle tax credits and infrastructure investments, making implementing such large-scale cuts even more complex.
During Trump's first term, efforts to cut spending have proven difficult. He attempted to reduce insurance subsidies under the Affordable Care Act, but was vetoed by the Senate. Congress also rejected many of his other proposals to cut domestic agency spending. Trump ultimately agreed to increase discretionary spending and provided trillions of dollars in economic relief through a series of bipartisan agreements during the pandemic, which led to a surge in the deficit. Nevertheless, Trump stated that he will seek to reduce spending by withholding funds approved by Congress, challenging the 1974 law that limited the president's power to withhold appropriations.
The closest approach to Musk's austerity policy is the budget proposal put forward by Republican Senator Rand Paul, which plans to cut spending by 6% annually for five years until the US budget is balanced. However, this blueprint did not specify which projects would be cut, and was rejected in a procedural vote of 56-39 in the Senate last month, facing opposition from Republican defense hawks such as Roger Wick, the Republican leader of the Armed Services Committee, and Susan Collins, the Republican leader of the Appropriations Committee.
If Trump's detention strategy fails, he will need the support of Congress to implement the reduction measures, and lawmakers are typically unwilling to shift the pain onto projects that provide billions of dollars to states and voters.
In the Senate, cutting mandatory federal spending items other than social security only requires a simple majority vote. But typically it takes 60 votes to break the Senate's obstruction rule on annual spending bills, providing Democrats with leverage to prevent large-scale cuts.
The internal divisions within the Republican Party over spending levels and policies have also forced Republican leaders to constantly seek support from the Democratic Party to maintain government operations and extend the federal debt ceiling, which will need to be raised again next year.