Dylan Smith is vice-president and senior economist with Rosenberg Research, and a contributing writer to the daily economic report, Breakfast with Dave.

The U.S. presidential election has been thrown into a state of high uncertainty after last week’s debate, with the biggest question being whether President Joe Biden will stand down and trigger a hurried candidate selection process for the Democratic party. But whatever happens on the candidate front, it is ultimately economic policy that matters for markets, and our baseline is that we don’t expect the Democratic platform to change considerably.

Donald Trump’s policy agenda, meanwhile, looks like a clear case of “doubling down” on aspects of his first presidency, which would be implemented by a more coherent and “bought-in” administration and Republican caucus than Mr. Trump worked with in his first term. The race remains too close to call according to most recent polling and election models and has become more uncertain postdebate, with Mr. Trump gaining an edge on Mr. Biden, but the likelihood Mr. Biden gets replaced on the ticket is rising substantially.

So, we’re outlining how an investor might position for either outcome, but are recommending staying tactically flexible and favouring overweights in assets that will perform well whoever may win (gold is particularly attractive in this regard) and focusing on secular themes with less sensitivity to politics.

Expect stable but disappointing price moves on a Democratic win and higher volatility on a Trump win. If the Democrats retain office, climate-transition technology players, utilities and engineering and construction (tied to flagship Biden programs) are all good bets, while on a global scale, the winners from global value-chain re-orientation will continue to boom (Mexico, India, Japan, and parts of Southeast Asia).

Under a Trump win, the U.S. hydrocarbon industry is a sure beneficiary, and prospects of a corporate tax cut will boost equities in general (but hurt the long end of the Treasury curve).

Key to all this is that the platforms of both candidates should be taken with a big pinch of salt. The ability of the White House to pursue its agenda will hinge on the makeup of both houses of Congress. The Senate looks likely to be Republican-controlled, so a Democratic White House would be a weak one limited to what can be achieved by executive order, at least according to current polling.

The House of Representatives was looking like a toss-up before last week’s debate, but we would not be surprised to see polls start to trend toward a Republican sweep as the most likely outcome.

However, we must recognize how little coherent policy content there is in this U.S. election cycle. The race is being run on personality (and the perceived sprightliness of the two oldest-ever candidates), then social policy (e.g., abortion, climate, Israel/Palestine, trans rights), with economic issues a distant third. Compared with the highly detailed pledges in the British and French elections, the U.S. party platforms are very poorly spelled out – to the detriment of the electorate and democratic system.

While there is a temptation to dismiss Mr. Trump’s sometimes extreme and seemingly off-the-cuff policy pronouncements, we take him and his statements seriously. The lesson of his first presidency – for markets and citizens alike – is that you write off his election policies at your own risk. The steadying “calmer voices” of respected business leaders and elder statesmen that surrounded Mr. Trump in 2016 likely won’t be in the administration this time around.

That said, there is far less consideration and far more posturing in Mr. Trump’s economic policy compared to Democrats, so we have much less confidence in his actual agenda. A level of strategic ambiguity works in his favour because it gives him the option to claim a mandate and enact seemingly extreme policy, or to walk his position back without loss of credibility.

Mr. Trump’s plan contains by far the largest risks to growth and is more inflationary. That stems from his stated intention not only to curtail immigration but to enact mass expulsions, coming alongside a blanket 10-per-cent tariff on imports (even a softer version of that policy is extreme, and would trigger a global tit-for-tat trade war). That would mean a simultaneous shock to the labour force and supply chain that would devastate the supply side of the economy and, in all likelihood, be highly inflationary. Leaning on the Fed’s independence to keep rates low, as Mr. Trump has repeatedly implied he will do, would not help to contain the fallout. The only other clear element of Mr. Trump’s plan is his warm stance on fossil fuels, so look no further than the oil and gas sector for a place to position your portfolio if you believe Trump will win.

The Democrats’ agenda promises consistent policy on immigration, encouraging the (legal) growth of the labour force while acting tougher on illegal immigration. Government-directed and -funded industrial policy development will remain at the heart of the growth agenda, and a Democratic administration would be judged primarily on whether costly programs from Mr. Biden’s first term deliver results in heartland manufacturing growth and job creation.

From a fiscal perspective, both potential administrations would move the U.S. budget balance in the wrong direction. Mr. Trump has suggested fresh corporate tax cuts on top of making his 2018 tax reduction bill (a large share of which is set to expire in 2025) permanent. Democrats would extend the tax cuts on incomes below $400,000 and have plans for higher spending on social programs. With debt service eating up an increasingly massive share of current revenues, tax increases or spending cuts are required just to keep treading water on the deficit front.

Neither party has openly recognized the importance of rationalizing the U.S. fiscal position, and the only sure outcome of the coming election is that the urgent need for action on the budget will probably dominate the 2028 election.

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