The U.S. election – early thoughts for credit

Key takeaways

• With the November 5th, 2024, U.S. Presidential election now less than six months away, market participants are increasingly focused on the potential impacts to the macroeconomic landscape and, by extension, the corporate credit market. In many ways, the Republican and Democratic presumptive candidates are somewhat “known” to the markets in terms of their policy priorities in past and current administrations, respectively. Nonetheless, we see scope for such policy priorities to evolve in response to the unique backdrop (i.e., a large U.S. fiscal deficit, heightened geopolitical risks, etc.).
• With this as a backdrop, in this Global Credit Weekly, we highlight the five areas we believe are most important for corporate credit investors to monitor over the coming months. These include: (1) potential changes to corporate tax policy, (2) the possibility of new tariffs, (3) any changes in discretionary non-defense fiscal spending, (4) any new developments related to regulation and anti-trust stances, and (5) policies related to immigration. In this context, sector and issuer selection should gain increased importance, in our view.
• Taxes are likely to be especially closely watched, given the upcoming expirations (at year-end 2025) for some personal tax cut provisions in the 2017 Tax Cuts and Jobs Act (TCJA). Extending this legislation could introduce changes to corporate tax codes, if a broader tax package is adopted. That said, using the TCJA as a guide, the impact across the corporate credit market is likely to be far from uniform. Indeed, a 2023 paper from the Federal Reserve Board of Governors highlighted how trends in effective tax rates – and exposure to the TCJA’s main provisions - varied substantially for public, private, multinational and domestic firms (Exhibit 1), as well as across the size spectrum.

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Exhibit 1: The impact of the TCJA was far from uniform across the corporate landscape
Mean effective tax rates for cohorts of U.S. companies: 2016 vs. 2019

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Past commentaries

• Week of May 2nd
• Week of April 25th
• Week of April 18th
• Week of April 11th
• Week of April 4th
• Week of March 21th
• Week of March 14th
• Week of March 7th
• Week of February 29th
• Week of February 22nd
• Week of February 15th