Wall Street remained cautious after a contentious debate between Republican Donald Trump and Democratic Vice President Kamala Harris left traders and investors with minimal clarity on key policy issues. Despite the combative exchanges, the debate offered little new information on critical topics like tariffs, taxes, and regulation — areas that could potentially sway market sentiment. However, betting markets showed a shift in favor of Harris, whose perceived performance could influence asset prices in the coming days.
Throughout the debate, Trump and Harris clashed over numerous topics, including the economy, immigration, and Trump’s legal challenges. Both candidates appeared to seek a campaign-defining moment in a tight race, but investors were left uncertain about future policy directions. “Neither one of them made strong economic points, but overall Harris came out of this better than Trump,” remarked Eric Beyrich, portfolio manager at Sound Income Strategies. “Markets really don’t want strident statements; they want clarity.”
The aftermath of the debate saw modest movements in betting markets, with PredictIt’s 2024 presidential election odds showing Harris’ chances improving to 56% from 53%, while Trump’s odds slipped from 52% to 48%. Market reactions were muted, with the S&P 500 E-minis and Nasdaq 100 E-minis both down 0.3% early Wednesday in Asia. The U.S. dollar index, which measures the currency against a basket of six major peers, also dipped by 0.2%.
While market participants acknowledged the debate’s limited impact, some believed even a small shift in voter sentiment could be crucial in a race that could be decided by narrow margins in key battleground states. “The debate is not going to change many minds, as voters remain closely divided,” said Sonu Varghese, global macro strategist at the Carson Group. “Harris moving ahead in prediction markets is notable, but the race remains tight.”
Shier Lee Lim, Lead FX and Macro Strategist for APAC at Convera, noted that “the debate does not seem to be having a major impact on markets so far, which aligns with the relatively low volatility expectations heading into the event.” Still, Lim added, “the debate could still prove to be a significant catalyst for shifting election probabilities.”
Amidst the election focus, investors remain fixated on other immediate concerns, including a potential slowdown in the U.S. economy and the Federal Reserve’s uncertain path on interest rates. Last week, the S&P 500 posted its worst weekly percentage loss since March 2023 following a second consecutive lackluster jobs report, despite the index still being up nearly 15% year-to-date.
Key Policy Differences: Taxes and Tariffs
The debate further highlighted key policy differences that could shape market sentiment. Trump has promised lower corporate taxes and a tougher stance on trade and tariffs. He maintains that a strong dollar harms U.S. competitiveness, although some analysts argue his policies might spur inflation and potentially strengthen the currency in the long run.
Conversely, Harris has outlined plans to raise the corporate tax rate to 28% from 21%, a proposal that some on Wall Street fear could pressure corporate earnings. During the debate, Harris criticized Trump’s proposed high tariffs on foreign goods, comparing them to a sales tax on the middle class. She instead emphasized tax benefits for families and small businesses. Trump defended his tariffs, arguing they would not lead to higher consumer prices.
The debate’s immediate effect on currency markets was muted. The Chinese yuan, which had previously weakened during the U.S.-China trade war under Trump’s administration, saw a slight uptick against the dollar. Karl Schamotta, Chief Market Strategist at Corpay, noted that “Harris succeeded in shifting prediction market odds in her favor, supporting a mild, but broad-based improvement in risk appetite across currency markets.”
While Trump also seized the opportunity to criticize Harris for inflation under the Biden administration, labeling it a “disaster,” many investors felt that economic policy directions remained unclear. “There wasn’t much substantive discussion of policy,” Varghese of the Carson Group pointed out. “Neither candidate presented vastly different economic policies than those currently in place, and many decisions next year will likely depend on the makeup of Congress.”
Conclusion
For traders and investors, the debate left more questions than answers, particularly around the economic policies that could be enacted post-election. While the event had minimal immediate impact on markets, slight shifts in prediction markets suggest that even small changes in perceived candidate strength could become meaningful in the days ahead. The next few weeks will be critical as markets navigate both political uncertainties and broader economic concerns, including the Fed’s next move and potential shifts in fiscal policy.
