Bank of America’s Trump-Harris election playbook

Tuesday’s U.S. presidential election is the biggest catalyst this week for equities and will set the tone for stocks over the near-term, according to Bank of America. But don’t expect a big move, equity and quant strategist Ohsung Kwon said. He doesn’t expect the S & P 500 to make a move of 2% or more as such a reaction has only occurred a quarter of the time on Election Day for contests going back to 1928. “We believe implications to equities from the election will be more nuanced than what the headline might suggest,” Kwon wrote in Sunday note. “Profits matter more for stocks than politics and the election will remove the overhang more than anything, in our view.” Stocks were lower Monday on the eve of the election . Here’s how Bank of America suggests trading a variety of Election Day outcomes. Republican clean sweep In the event that former President Donald Trump regains the White House on Tuesday, while Republicans control both chambers of Congress, Kwon forecasts a knee jerk response for the most regulated aspects of the market. That’s because Trump has made deregulation a key piece of his 2025 agenda. These sectors consist of industrial, consumer discretionary and financial stocks. Real estate and technology are among the least regulated segments, he noted, which could keep the market’s reaction somewhat muted in regard to that cohort of stocks. To be sure, this reaction could fall to the way side over the long-term, Kwon noted, especially if yields begin to rise over investor concern tied deficit spending and overall U.S. debt in response to tariffs Trump has proposed . Split Republican control A Trump White House with a largely Democratic Congress is overall neutral for equities, Kwon said. With this scenario, the Trump administration could deliver the tariffs the former president has proposed, but his deregulation efforts could be stalled, Kwon added. Democratic clean sweep A win for Vice President Kamala Harris and a Democratic majority in Congress could see corporate taxes rise to 28% from 21%, with a hit to earnings for stocks of as much as 5%, Kwon said. Specific segments that could see an earnings hit include consumer discretionary, communications services and financials. Kwon said BofA would suggest buying the dip on a pullback in stocks in this situation, especially if the Harris administration raises fiscal spending, which could be a growth catalyst for stocks. Split Democratic control The status quo would be maintained with a Harris White House and a Republican Congress, Kwon said. This would shift Wall Street’s focus back toward economic fundamentals as well as the Federal Reserve’s next move on interest rates. The strategist said equities have upside in this scenario. To be sure, Kwon said price momentum for stocks coming out of the election can continue into the next few weeks when judging by history. Over the past seven election cycles, the two-week price direction for stocks was identical to one day after election day every single time. Outside of the election, Kwon said that the Fed could have ample reason to cut further. He forecasts four interests rate cuts at the next four Federal Open Market Committee meetings moving forward, which aligns with BofA’s view of a moderating labor market.