Goldman Sachs trader: Harris' victory will lead to a decline in US stocks, a decrease in US bond yields, and a weakening US dollar

This week, a report by Goldman Sachs analysts went viral.

The content of their report from last week (September 3) appeared in the US presidential debate, where Democratic candidate Harris used it to criticize the Republican candidate and former president Trump. This also prompted the CEO of Goldman Sachs to quickly appear on TV the day after the debate to "put out the fire".

Is Goldman Sachs trying to please Harris? Goldman Sachs CEO quickly puts out the fire: The difference in the economic impact of the economic policies of the two parties is not significant

Specifically, Harris claimed in the debate that she was offering "opportunity economics" and received endorsements from the best economists in the United States and even the world, "because Goldman Sachs said that Trump's plan would worsen the US economy, while my plan would strengthen the economy."

Interestingly, Goldman Sachs CEO Solomon seemed to immediately distance himself from the report by his own employees. In an interview on Wednesday, he said, "The report mentioned in the debate on Tuesday came from an independent analyst, and people have overinterpreted this report."

Solomon emphasized that the report attempted to model and analyze the impact of the policy frameworks of the two presidential candidates on US GDP growth, and in fact, the difference in the economic impact between the two sides is not that significant, "the difference in the economic impact between the two sides is only about 1/50th of 1%".

The famously acerbic financial blog Zerohedge sarcastically commented that Goldman Sachs equated millions of illegal immigrants with "economic growth and lower inflation", completely ignoring the collapse of the social safety net, soaring crime rates, and other negative impacts. Furthermore, Goldman Sachs' sell-side research reports are predicted to be inaccurate and completely opposite to the facts 80% of the time.

The highly anticipated new report from Goldman Sachs FICC traders: Harris's victory is still related to the decline in US stocks, the decline in US bond yields, and the weakening of the US dollar

The above-mentioned blog believes that the more accurate Goldman Sachs FICC (Fixed Income, Currencies, and Commodities) trader Douglas Millowitz published a report on Friday, September 13, stating that although the Goldman Sachs economists cited in the debate believe that Harris's victory will bring marginal overall benefits to the US economy, the trends of previously analyzed assets still apply:

Harris's victory will be related to a slight decline in US stocks (as well as underperformance of the US stock market compared to non-US stock markets, and underperformance of small-cap stocks compared to the S&P 500), a decline in US bond yields, and a weakening US dollar. The impact on the movement of the US dollar, offshore RMB, and Singapore dollar may be relatively greater.

Leading up to the presidential election, Goldman Sachs has been releasing frequent reports. In summary, the election results and market impacts are as follows. It is worth noting that only in the scenario where the Republican Party wins overwhelmingly can US stocks potentially rise:

Republican Party wins overwhelmingly (Note: Winning control of the White House and both houses of Congress) probability is 32%:

• US Dollar: Strengthening

• US Stock Market: Rising (market reactions indicate that small-cap stocks will perform better, and US stocks will outperform European stocks)

• US Treasury yield: rising (market reaction indicates that yields will rise across the board, with a steeper curve)

There is a 29% chance of the Democratic Party's Harris being elected president and the control of both houses of Congress falling into the hands of different parties:

• US Dollar: slightly weakening

• US stock market: trending lower to neutral (market reaction indicates that small-cap stocks will underperform, and US stocks will lag behind European stocks)

• US Treasury yield: declining

There is a 20% chance of a Democratic Party landslide victory:

• US Dollar: slightly weakening

• US stock market: slightly trending lower (market reaction indicates that small-cap stocks will underperform, and US stocks will lag behind European stocks)

• US Treasury yield: rising

There is a 16% chance of the Republican Party's Trump being elected president and the control of both houses of Congress falling into the hands of different parties:

• US Dollar: slightly strengthening

• US stock market: slightly trending lower to neutral

• US Treasury yield: slightly rising

What did Goldman Sachs' report, used by Harris to attack Trump, say?

Furthermore, let's look at the Goldman Sachs U.S. economic analyst report cited by Harris in the debate on September 3, evaluating the trade, immigration, and fiscal policies of the two candidates and their impact on inflation, labor growth, US GDP, and fiscal deficits:

The report believes that if Trump wins, he will increase tariffs on goods imported from China by an average of 20 percentage points, and tariffs on cars imported from Mexico and the EU will also increase. Although he threatened to impose a 10% "universal tariff" on all imports, it may not be the base case scenario, and a Harris victory will not increase tariffs.

In terms of immigration, a Harris victory may slow net immigration to 1.5 million people per year, slightly higher than the pre-pandemic 1 million people, while a Republican landslide victory would reduce net immigration to 750,000 people per year. In terms of fiscal policy, if the Democratic Party wins big, individual and corporate taxes as well as social welfare spending may increase, while if the Republican Party wins big, the above items will remain basically unchanged.

For inflation, Goldman Sachs expects that for every 1 percentage point increase in the effective tariff rate, core PCE prices will rise by 0.1 percentage point. A Trump victory will lead to an increase in the effective tariff rate by 3 to 4 percentage points, with core PCE inflation rising by 30 to 40 basis points at its peak, and the impact of a 10% universal tariff on inflation is roughly three times the above figures.

For GDP, the impact of tariffs and tightening immigration policies after a Republican victory will outweigh positive fiscal stimulus and could drag economic growth by up to 0.5 percentage points in the second half of 2025. A Democratic landslide victory will lead to a slight increase in average GDP growth from 2025 to 2026, with new spending and expanded middle-income tax credits offsetting slightly the reduction in investment due to increased corporate taxes.

However, if the Democratic Party fails to win control of both houses of Congress, the net economic impact of policy changes will be neutral. In all cases, the basic deficit, excluding interest payments, may remain stable or slightly decrease, as the current fiscal deficit in the US is "exceptionally large" for an economy at full employment, which may limit the willingness of both parties to further expand the deficit