JPMorgan warns of unprecedented economic changes on the horizon, as US election results threaten to alter tax policy, public debt, and market stability.

JPMorgan sees unprecedented changes on the horizon

International investment bank JPMorgan released a report on Friday highlighting the potential implications of the US elections for tax policy, public debt, and market stability, and offering recommendations on how investors can approach the election period.

JPMorgan analysts explained that with the expiration in 2025 of key provisions of the Tax Cuts and Jobs Act (TCJA) of 2017, Congress is likely to revisit tax policy, as failure to extend these measures could significantly raise taxes. The report states:

Overall, if the TCJA temporary provisions expire, personal tax rates will return to higher levels, resulting in a post-tax income reduction for all US households of 1.8%, and for the top 1% earners - 3.1%.

In this regard, JPMorgan expects that both parties may insist on at least a partial extension of the TCJA, though specifics will depend on the election outcome.

Regarding the national deficit, JPMorgan anticipates its increase under any candidate's proposals, with possible implications for bond yields. The report states: 'If all political proposals from the campaign become reality (which is unlikely), the deficit could increase by more than $1 trillion over the next 10 years under Kamala Harris and nearly $4 trillion under Donald Trump. Therefore, it makes sense that bond yields have increased along with the likelihood of a Republican victory.'

While concerns about the debt are evident, JPMorgan suggested that some fears may be exaggerated. The report explains:

While we view the trajectory of debt and deficits as a risk, we believe that some fears are misplaced. In fact, the current all-encompassing yield provides investors with a second chance. For those who felt they missed the opportunity to add core bonds, this could be your second chance.

JPMorgan also considered the possibility of prolonged or contested elections, noting: 'It's hard to say when we will know who won these elections, and it is possible that we won't have a clear answer for a week or two. In the case of close elections, we expect to see litigation and other legal actions before the end of the year. It's also important to note that the 2022 Vote Counting Reform Act was aimed at strengthening mechanisms to ensure clear implementation of election results.'

However, analysts advised investors: 'Stock market volatility typically declines relatively quickly after a new government is confirmed, and on average, stocks are higher 12 months after elections. In other words, don't let the elections confuse you - election results do not govern market profits in the long term.'

This week, JPMorgan analysts led by Managing Director Nikolaos Panigirtzoglou also predicted that a Trump victory could drive retail investors towards riskier assets, potentially boosting prices for bitcoin and gold as part of a broader 'devaluation trade.'

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