How the US Election Could Impact Financial Markets

Whichever candidate wins the U.S. presidential election next Tuesday, many investors are likely to breathe a sigh of relief as a major source of uncertainty is resolved. Yet experts caution that broader macroeconomic forces — including interest rate decisions, inflationary trends and geopolitical tensions — will probably wield greater influence on markets over the next year than the election outcome itself.

“We focus on which candidate is most likely to affect economic growth,” said Brianne Gardner, senior wealth manager at Velocity Investment Partners, Raymond James. Investors are assessing not just election rhetoric but which policies would meaningfully change growth prospects and corporate earnings.

What Harris and Trump have proposed

Democratic candidate Kamala Harris has emphasized strengthening domestic competitiveness, with policy priorities around renewable energy, semiconductor production and public infrastructure. That approach could favor industries tied to clean energy, advanced manufacturing and long-term capital projects, and it may preserve current trade frameworks that support corporate stability.

Some analysts suggest a Harris administration could be associated with a somewhat weaker U.S. dollar in the short term, potentially nudging inflation higher for a period. Still, the consensus view is that her proposals would focus on investment-led growth rather than abrupt trade shifts.

Republican candidate Donald Trump has signalled plans to cut taxes—particularly corporate tax rates—and roll back certain regulations. Tax reductions and deregulation tend to support profit margins, which could boost sectors such as energy and financial services. At the same time, Trump has proposed significantly higher tariffs, including a previously mentioned 60% tariff on some imports from China and broader increases on other goods, which would raise costs for import-dependent businesses.

How the election could affect investors

Market volatility often increases before an election, but most experts do not expect a catastrophic market outcome regardless of who wins. “Your preferred sectors will vary depending on the policy mix,” said Michael Currie, senior investment adviser at TD Wealth. Investors typically shift allocations toward industries likely to gain from the administration’s priorities.

While Trump’s pro-business stance—tax cuts and deregulation—historically correlated with strong market performance during his previous term, Harris is seen by some advisers as lowering geopolitical risk, which can bolster investor confidence and encourage equity investment. Overall, market reaction tends to reflect clearer expectations about policy after the winner is known.

Could these policies fuel inflation?

Tariffs and trade barriers can translate into higher costs for manufacturers and consumers, which would contribute to inflationary pressure. Glenn Chamandy, CEO of a major apparel company, noted that tariffs affect costs industry-wide; if applied broadly, they create a level playing field but can still raise prices across supply chains.

Higher government spending—something both parties may pursue in different forms—can also be inflationary by boosting demand. Kevin Headland, chief investment strategist at Manulife Investment Management, points out that tax cuts and tariffs together could add upward momentum to price growth if they stimulate demand while raising costs.

Historical analyses indicate that party control alone does not determine market outcomes; often, the state of the economy at the time a new administration takes office is the bigger factor. Certain sectors, like health care, may underperform during election years because candidates typically promise reforms aimed at large pharmaceutical and insurance companies; such rhetoric can weigh on sector sentiment even if major legislative changes do not materialize.

What the U.S. election means for Canada

Because the United States is Canada’s largest trading partner, shifts in U.S. trade policy or tariffs could materially affect Canadian exports and economic growth. If U.S. demand softens or new trade barriers emerge, Canada could face weaker exports and slower growth, particularly in resource and manufactured goods sectors that rely on access to U.S. markets.

Former president Trump’s proposed trade policies could introduce uncertainty for Canadian businesses that depend on stable cross-border supply chains and predictable tariff regimes. Even the prospect of policy change tends to increase market volatility leading up to an election, though long-term market moves are often muted once outcomes are known and companies adapt their strategies.

Historical market patterns show subdued performance during election years in many cases, with stronger returns more likely in the year after an election as uncertainty fades and investors recalibrate to a clearer policy landscape. “Markets dislike uncertainty,” Gardner noted. Once the winner is determined, markets typically adjust and often trend upward as expectations and policies become clearer.

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