JPMorgan Sees Unprecedented Changes Brewing

Global investment bank JPMorgan released a report on Friday, highlighting the potential impacts of the U.S. election on tax policy, government debt, and market stability

Global investment bank JPMorgan (NYSE:JPM) offered a report on Friday to help investors approach the upcoming U.S. election as it pertains to tax policy, government debt, and market stability.

According to JPMorgan analysts, key provisions of the 2017 Tax Cuts and Jobs Act (TCJA) are set to expire in 2025, at which point Congress will likely revisit tax policy. If the measures are not extended, personal tax rates will revert higher, and it would result in a 1.8% reduction in after-tax income for all U.S. households, as well as a 3.1% reduction for the top 1% of earners.

In all, if the temporary provisions in the TCJA expire, personal tax rates would revert higher, and it would result in a 1.8% reduction in after-tax income for all U.S. households, as well as a 3.1% reduction for the top 1% of earners.

Given this, JPMorgan anticipates an effort from both parties to push for at least a partial extension of the TCJA, although the specifics will depend on the election’s outcome.

Regarding the national deficit, JPMorgan anticipates an increase under either candidate’s proposals, with potential impacts on bond yields. The report describes: “If all of the policy proposals from the campaign trail become reality (unlikely), the deficit could increase by over $1 trillion over the next 10 years under Kamala Harris, and by nearly $4 trillion under Donald Trump. This is why it makes some sense that bond yields have increased along with the odds of a Republican sweep.”

While debt concerns are evident, JPMorgan suggested that some fears may be overstated. The report explains:

While we view the debt and deficit trajectory as a risk, we think some of the fear is misplaced. In fact, current all-in yields give investors a second bite at the apple. For anyone who felt they missed the opportunity to add to core bonds, this may be your second chance.

JPMorgan also addressed the possibility of an extended or contested election, noting: “It is difficult to say when we will know who won this election, and it’s possible that we may not have a clear answer for a week or two. In the event of a close election, we would expect to see court challenges and other legal action through the end of the year. It is important to also note that the 2022 Electoral Count Reform Act is meant to strengthen the mechanisms that ensure a clear implementation of election results.”

However, the analysts advised investors: “Equity market volatility tends to fall relatively quickly after the new composition of government is confirmed, and on average, equities are higher 12 months after the election. Said differently, don’t let an election derail your plans—election outcomes don’t drive market returns over the long run.”

This week, JPMorgan analysts, led by managing director Nikolaos Panigirtzoglou, also predicted that a Trump victory could drive retail investors toward risk assets, potentially boosting prices for bitcoin and gold as part of a broader “debasement trade.”