Analysis: Rise in election talk from US execs highlights policy uncertainty

Sysco

22/08/2024 13:47

* 
      Energy, IRA, tariffs and trade among key topics- FactSet
    

        * 
      Corporate taxes pose bigger risk to equities than tariffs
- Citi
    

  
    By Medha Singh
       Aug 22 (Reuters) - U.S. company executives are talking
much more about the upcoming presidential election than they did
four years ago as a wider policy rift between candidates Kamala
Harris and Donald Trump raises questions around taxes, tariffs
and pricing power.
    In company earnings calls over the two months ended Aug. 15,
mentions of "election" or "White House" were 34% higher than the
corresponding period in 2020, according to an LSEG Workspace
screen of S&P 500 companies. 
    After energy and carbon emissions, including renewables and 
electric vehicles, the Inflation Reduction Act (IRA), tariffs
and trade were the most talked about policy topics by companies
which cited "elections" during second-quarter earnings,
according to a separate analysis by FactSet.
     
  
        
  
        Sharper policy differences between the two candidates
now than during the 2020 race may be spurring the heightened
discussion of the election on earnings calls, said Sam Stovall,
chief investment strategist at CFRA Research.
        "Company profits could be affected materially, depending
on which party gains the White House, and especially if it is
either a blue or red wave," Stovall said.
        Harris' surprise rise to the top of the Democratic
ticket following President Joe Biden's exit from the race in
late July has added another layer of uncertainty, investors
said.
    "We have an idea as to what Trump is planning, but we have
less clarity on Harris' plan. We have a belief that it's going
to be somewhat continuation of the Biden administration, but a
little different," said Robert Pavlik, senior portfolio manager
at Dakota Wealth Management.
        Republican nominee Trump has been loud about his
intention to go big with trade restrictions, vowing to impose
tariffs of 60% or higher on all Chinese goods. He has also
floated the idea of a 10% universal tariff.
    Tariffs and taxes are most relevant to U.S. equity
fundamentals, Citi Research said in a note, and higher corporate
taxes pose a bigger risk to earnings than tariffs do.
    "It all comes down to taxes... that's the rally killer for
this market," said David Wagner, portfolio manager at Aptus
Capital Advisors. 
    "The new corporate tax rate is an instant haircut to
earnings growth. That's why a lot of these companies are really
starting to talk about this to get ahead of the curve."
    Harris is proposing to increase the corporate tax rate to
28% from 21% if she wins the November election. 
    Trump, who slashed the rate to 21% from 35% during his term
and implemented other tax breaks set to expire next year, has
pledged to make the cuts permanent.    
    The closeness of the presidential race - an Ipsos poll
conducted Aug. 2-7 showed Harris leading Trump 42% to 37% -
makes it difficult for companies to start positioning for a
particular outcome.
    On companies or people stocking up in advance of potential
tariffs, U.S. chemicals maker Dow Inc's  DOW.N  CEO James
Fitterling said, "I don't think anything has started yet...
primarily because there's all the uncertainty around the
election and what policies are going to actually stick."
    Still, some firms have laid out some plans on how they will
respond to the election outcome. Cosmetics company Elf Beauty's
 ELF.N  CEO Tarang Amin said the firm would raise prices as it
passes on the cost from higher tariffs, should Trump win.
    "We don't like 60% tariff just because we feel it is a tax
on American consumers," Amin said.
    Sharpie pen maker Newell Brands  NWL.O  is moving some
production of kitchen appliances out of China amid tariff
uncertainty, CEO Chris Peterson told Reuters. 
    The election's outcome may have big implications for
companies in the energy and electric vehicle sectors.
    On energy, Harris is largely expected to adhere to Biden's
policies and supported his landmark IRA, while Trump is expected
to undo much of it.
    Trump has also said he would consider ending a $7,500 tax
credit for electric-vehicle purchases.
    Their ability to push through policies will also depend on
securing the backing of Congress.
    "The key will be who controls the House and the Senate,
irrespective of who is the president," said Thomas Hayes,
chairman and managing member at Great Hill Capital, LLC.

    <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
FACTBOX-Biden, Harris' unfinished business: taxes on rich,
childcare credit     ID:nL1N3K203L 
Trump pledges to end pollution rule, block steel merger   
 ID:nL1N3K60T7 
Kamala Harris proposes raising corporate tax rate to 28%   
 ID:nL1N3K60UB 
Election talk heats up ahead of Nov. vote    https://tmsnrt.rs/3SZgZUn
    ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
 (Reporting by Medha Singh in Bengaluru; Writing by Arpan
Varghese; Editing by David Gaffen, Saqib Iqbal Ahmed and Devika
Syamnath)
 ((mailto:Medha.Singh@thomsonreuters.com; +91 80 6210 0592; X,
formerly Twitter: @medhasinghs;))