Election Update: The Grain of Salt Needed for Democratic Convention Promises

Editors’ Note: MarketMinder prefers no politician nor any candidate. We assess developments for their potential economic and market impact only.

What do a ban on “price gouging,” tax-free tips and subsidized down payments for first-time homebuyers have in common? All have investors’ and pundits’ tongues wagging after Vice President Kamala Harris touted them in a big economic policy speech last Friday. Most of that wagging is fearful, matching the sentiment reaction to former President Donald Trump’s proposals. For the election itself and people’s voting decisions, all of this rhetoric and the associated feelings probably matter. But for investors, we suggest tuning down all the chatter. Campaign pledges often don’t become law, and actual legislation is what stocks care about.

Regardless of a candidate’s party or personality, taking their campaign proposals with a giant pinch of salt is wise. Candidates’ mission today isn’t to give America a solid understanding of what they will do in office and what has a realistic chance of passing. Society might want that to be the mission, but politicians are self-interested first and foremost. Their mission is to maximize votes in the swing states they need to win in November. It is all about getting to that magic 270 electoral votes and telling voters whatever they need to hear to pull the lever. Typically, this means figuring out what is top-of-mind to people in these states and tickling their ears. It is marketing, pure and simple.

This year’s swing states are Nevada, Arizona, Wisconsin, Michigan, Pennsylvania and Georgia. Local headlines, polling data and numerous other indicators tell our presidential candidates that people here are fed up with high grocery prices, frustrated that young people can’t get on the housing ladder, miffed over lost manufacturing jobs, overwhelmed by childcare costs, and, and, and. So our candidates are floating ideas that speak to these gripes. Trump has been doing this for months. Now Harris is taking her turn.

The proposal getting the most ink is a pledge to ban grocery price gouging, which a lot of outlets have shorthanded as grocery price controls. Price controls in general would be very bad, as society learned (and seemingly since forgot) during the Nixon administration. Harris’s proposal, as outlined in her campaign’s factsheet, doesn’t appear to go quite that far. Rather, it hints at legislation to curb grocers’ profit margins in order to rein in “excessive prices unrelated to the costs of doing business.” We still see a lot of potential here for unintended consequences. Watering down supply and demand’s influence over prices can lead to shortages—and ultimately higher prices. But the proposal is so squishy—like the concept of price gouging itself—that it is premature to read anything into it. Nor does it seem broad-based enough in this rough form to have a high likelihood of hitting stocks or the economy hard.

Elsewhere, we have the proposed $25,000 subsidy for first-time homebuyers, which several analysts argue would probably just jack up home prices further. A lot of variables go into home prices, but the UK’s experience with similar subsidies in the 2010s suggests they are onto something. On the tax front, the Harris campaign proposes resurrecting the expanded child tax credit and adding a $6,000 credit for families with a newborn. And, borrowing a Trump proposal that got a ton of ink, she now favors making some tips tax-free, but with limits and guardrails aimed at preventing non-service workers from reclassifying some income as tips.

Some or all of this may appeal to voters. Maybe enough to get her over the hump. But maybe not. This contest remains too close to call, with polling in all six swing states extremely tight. We still have over two and a half months to go, and anything could happen. Markets move on probabilities, not possibilities. Harris’s (and Trump’s) proposals’ becoming law is a possibility, not a strong probability—not now, at least. Therefore, it is too early to try to account for this in a stock portfolio.

Then, too, all of these proposals require legislation, just as all fiscal policy does. The president can have all the ideas he or she wants, but Congress holds the purse strings. Whoever wins, their agenda stands very little chance of passing if their party doesn’t control the House and the Senate with a big enough margin to overcome internal opposition. If Harris wins but Congress is divided, we doubt much, if any, of this gets off the ground. Either way, it won’t be possible to assess the likelihood of legislation passing until the results are in.

Even if we get a Democratic (or Republican) sweep, that doesn’t guarantee all of Harris’s (or Trump’s) proposals become the law of the land. We know this will shock you, but politicians have a long history of saying one thing and doing another. That includes campaigning on a certain policy, then drifting from it when in office. We are old enough to remember when Barack Obama campaigned on scrapping George W. Bush’s tax cuts … then ended up extending and making most of them permanent. We also remember George H. W. Bush campaigning against tax hikes … and then hiking taxes. Other times, the legislation does pass but is greatly watered down from initial proposals, like 2017’s Tax Cuts and Jobs Act, 2010’s Dodd Frank Wall Street Reform and Consumer Protection Act and even the Affordable Care Act were.

Markets move most on the gap between reality and expectations. If campaign chatter has investors fearing radical change, and then that change doesn’t happen or is less radical than feared, the relief can be bullish. Similarly, if campaign chatter has investors full of high hopes for market-friendly reforms (which doesn’t seem likely this time around), and those reforms don’t happen or are less friendly than hoped, then the disappointment can weigh.

Thanks to these economic policy proposals, we are getting a sense of expectations. Markets see all of this and are pre-pricing it, including the widespread discussion of the attendant risks. This is part of investors’ gaining clarity as election years progress.

Later this fall, when the results are in, we can begin weighing how reality is likely to square with these expectations, which will likely factor into how stocks perform in 2025. But for now, we don’t think it is wise to make portfolio changes based on how you—and economists overall—feel about what either candidate touts.