Since US President Biden withdrew from the presidential race in July, the direction of this year's US election has also undergone dramatic changes.
With Vice President Kamala Harris suddenly becoming the Democratic candidate, Democrats have regained confidence in the prospects of the election. Moreover, multiple polls show that Harris' approval rating has now surpassed her opponent, Republican candidate Trump.
With less than 100 days left until the election, UBS has predicted in its report the four most likely outcomes of this year's election and their potential impact on the US stock market.
(1) Harris wins the election, but there is a split in Congress
UBS predicts that the most likely scenario is Harris taking over the White House, but Congress will be divided between the two parties - this possibility is 40%.
If such an election result were to occur, the overall impact on the US stock market would be minimal, as Harris may face restrictions from Congress when implementing his policies.
This result will only benefit companies focused on renewable energy and energy efficiency, while the stock prices of fossil fuel companies may also decline due to regulatory pressure.
In addition, UBS stated that strict regulation may also limit the financial industry, as Harris will maintain; quot; Oppose the ideology of large-scale financial services; quot;。 Since the collapse of Silicon Valley Bank in March last year, the Biden administration has been calling for stronger regulation, and Harris is expected to continue this stance.
At the same time, with a split in Congress, it is expected to limit Harris' ability to push for major legislation such as industry and healthcare.
(2) Trump wins election, 'red wave' sweeps through US Congress
The second outcome speculated by UBS is that a "red wave" swept across the United States - the Republican Party won a landslide victory, winning a majority in both houses of Congress, and Trump could also win the presidency.
UBS believes that the probability is 35%. Before Biden gave up on the campaign, UBS had predicted that this was the most likely outcome.
In this outcome, Trump will face fewer restrictions when implementing his policy plans, such as his promised increase in tariffs and extension of the 2017 corporate tax cuts.
UBS expects that in this situation, business regulation in the United States will relax and merger and acquisition activities may increase. These factors will help support investments in fossil fuels, which is also the best scenario for the financial industry.
This means a slight benefit for the overall US stock market - although Trump's other proposals, such as tariffs, will soon offset these gains.
For example, many economists have expressed concerns about Trump's plan to increase tariffs, believing that raising tariffs will stimulate inflation. In this situation, UBS expects the Federal Reserve interest rates and the US dollar to rise. Meanwhile, raising tariffs may also be detrimental to the US technology industry, especially hardware and semiconductor companies.
In addition, UBS pointed out that Trump's proposal to establish an international drug pricing index may also have a negative impact on healthcare stocks.
(3) Harris wins election, 'blue wave' sweeps Congress
UBS believes that Harris has a 15% chance of winning the election while the Democratic Party also wins a majority in both houses of Congress. UBS believes that if this situation occurs, it would be the worst outcome for the US stock market.
Because in this situation, UBS expects that the tax cuts implemented by Trump in 2017 will be terminated, and business regulation in the United States will also tighten. Financial and fossil fuel companies will be hit the hardest. At the same time, inheritance taxes may increase, and state and local tax exemptions may also be limited.
In this context, the economic growth of the United States will slow down and prompt the Federal Reserve to lower interest rates, while anti inflation will continue.
(4) Trump wins election, but 'red wave' does not appear
UBS predicts that the least likely outcome is for Trump to win the election, but for the Republican Party to fail to control Congress. UBS believes that the probability of this happening is 10%.
In this situation, the impact on the stock market will be mixed. Like the 'red wave', tariffs will still bring inflationary pressure and a strengthening of the US dollar, thereby moderately pushing up interest rates.
However, against the backdrop of the Republican Party's failure to win control of Congress, investment spending in the industrial sector may decline as uncertainty surrounding green energy plans increases.
At the same time, UBS expects regulatory pressure on the fossil fuel and financial industries to ease.