With Americans less than seven weeks away from the hotly contested presidential elections, Wall Street’s power brokers are hedging their bets by making hefty political donations to both sides. Judging by political donations received by both candidates’ parties in 2024, the US finance industry appears to be leaning toward former President Donald Trump’s Republican Party, even though Vice President Kamala Harris’ Democratic Party has received equally generous contributions from finance industry lobbyists.
According to data recently crunched by OpenSecrets, the financial sector, which includes securities and investment, insurance and real estate industries, has donated $247 million to Republican candidates in the current two-year political cycle, versus $227 million to Democrats.
Source: Reuters
Some Wall Street bosses have made their preferred presidential candidates a matter of public record. Lazard CEO Peter Orszag and President Ray McGuire have said that they are both personally supportive of Harris as a candidate, Reuters reported. Notably, Orszag previously held government roles under the Democratic Clinton and Obama administrations.
Similarly, Alex Soros, son of longtime Democratic supporter George Soros, quickly rallied behind Harris shortly after President Joe Biden bowed out of the race, posting on X that it was “time to unite around Harris and beat Trump.” His father, arguably one of the finance industry’s most controversial figures, also supports Harris.
Trump, in contrast, has secured the backing of Stephen Schwarzman, CEO of private equity giant Blackstone, who announced in May that he was supporting Trump, citing economic, immigration, and foreign policy concerns. Also in Trump’s camp is Scott Bessent, CEO Key Square Capital Management, who according to Reuters is acting as an unofficial adviser to Trump’s campaign and is seen as a possible Treasury secretary if Trump wins.
Bill Ackman, the CEO of Pershing Square Capital Management, endorsed Trump shortly after the first attempt on the former president’s life in July when he was shot and wounded in the ear at an open air rally in Pennsylvania. The billionaire hedge fund manager has emerged as a vocal supporter of Trump on X, a major reversal from January 2021 when he called for Trump’s resignation after the former president’s supporters stormed the U.S. Capitol.
Taming The Regulators
Political donations from Wall Street bosses do not automatically translate to electoral success for a presidential candidate. Wall Street solidly backed presidential candidates Mitt Romney in 2012 and Hillary Clinton in 2016 but both lost at the polls. That said, political donations from corporations and business leaders matter because they offer a glimpse into an industry’s desired policy and regulatory environment.
Wall Street financiers who support Trump are hoping that the Republican nominee – who survived yet another attempt on his life in Florida in September – will scale back some of the regulatory reforms undertaken by the Biden administration. Since Biden became President in 2021, the regulatory burden faced by the finance industry has increased. Agencies like the Securities and Exchange Commission and Consumer Financial Protection Bureau, led by Biden-nominated hardliners Gary Gensler and Rohit Chopra, have introduced aggressive enforcement campaigns against financial firms.
Meanwhile, the Federal Reserve’s package of bank rules known as the Basel Endgame, devised by Vice Chair Michael Barr, another Biden nominee, have drawn heavy criticism from banks. Those regulatory changes, which could raise the capital the biggest American banks have to hold by one-fifth, stirred up so much opposition that lenders and their trade associations threatened to take the Fed to court.
If elected, Trump would likely renew his efforts to scale back Biden-era reforms. Specific policies he’s likely to introduce include cutting back on protections for small-scale investors and borrowers, allowing companies to raise money with less scrutiny, and whittling down incentives aimed at promoting environment, social and governance (ESG) investments.
Michael Faulkender, a former Trump Treasury official and now chief economist at the America First Policy Institute (AFPI), which was founded by former Trump officials, has been particularly supportive of the move to scale back ESG investing.
“As the academic literature has documented, ESG is too much in the eye of the beholder,” he said. “Therefore, it can and has been used to deviate from the fiduciary duty that money managers have to their clients, and it has distracted financial supervisors from the safety and soundness criteria that should be used in ensuring the ongoing strength of the U.S. financial system.”
Economists Believe Economy Will Fare Better Under Harris
In a note exploring the potential economic implications of a Republican or Democratic victory, Goldman Sachs economists cautioned that the US GDP faces a hit in the case of a win for Donald Trump.
“We estimate that if Trump wins in a sweep or with divided government, the hit to growth from tariffs and tighter immigration policy would outweigh the positive fiscal impulse” from maintaining most tax cuts, Goldman economists including Alec Phillips wrote in a note.
Trump has pledged to increase tariffs on Chinese goods and cut the corporate income tax. Harris has described such plans as a tax on the middle class, but is generally expected to maintain President Biden’s policy of trying to reduce reliance on Chinese imports while blocking its access to advanced technologies.
The economists believe that immigration policy could ultimately make the difference in terms of how the economy performs under each candidate. A surge in immigration is viewed by many economists as having contributed to strong US employment growth in recent years in the face of high interest rates.
“We estimate that the contribution from immigration to labor force growth if Harris wins would be 10,000 per month higher than if Trump wins with divided government, and 30,000 a month higher than if Republicans sweep,” Goldman’s economists wrote.
While economists’ projections about an election usually make for catchier headlines, traders worried about the impact of the elections on the market need to focus on the Federal Reserve’s imminent rate cut and what that portends for assets across the board. Analysts believe the move could spark a rally in both equities and fixed income assets.
Anastasia Amoroso, iCapital’s investment chief, maintains that traders don’t have to fear the looming elections. The key influence for stock prices, in her view, ultimately won’t be political tumult, but rather earnings and Fed policy.
Not only that, but Amoroso called attention to the fact that US stocks typically delivered strong returns during election cycles. “In the last eight election cycles, the S&P 500 delivered a median return of +7.5% and +4.2% in the 12-months and 9-months leading up to election day, respectively, with positive outcomes 87% and 75% of the time, respectively.”
Author: Acutel
We are global investors who invest in good companies at fair valuation and speculate on all else subject to the risk exposure we can afford.
The editorial team at #DisruptionBanking has taken all precautions to ensure that no persons or organisations have been adversely affected or offered any sort of financial advice in this article. This article is most definitely not financial advice.
