Joe Biden’s withdrawal from the presidential race has meaningfully changed the dynamics of the U.S. election, paving the way for a much closer contest between the Democrats and the Republicans. Here are four market scenarios J.P. Morgan Research has on its radar.

1. Policy under the Democrats is likely to look similar

Kamala Harris and Joe Biden have been very much in lockstep throughout the latter’s term in office so there is likely to be little difference between their approach to policy. There is a possibility that Harris may take a more progressive stance on some issues, but in general, a Harris administration should look similar to Biden’s from a policy perspective.

However, there are some key differences to consider. “If Biden remained in power, he would no longer be beholden to important interest wings of the Democratic party, particularly with regard to fiscal issues,” said Bruce Kasman, Chief Global Economist at J.P. Morgan. “With Harris as the candidate, being a first-term president dependent on her base, a Democratic victory could lead to a somewhat more left-of-center set of policies, and that applies to fiscal, trade and regulatory policies.”

2. A Trump victory could have significant implications for equities

“If we get a Republican at the top of the ticket and gridlock in Congress, issues like trade, tariffs and immigration will come into focus. Companies that are very sensitive to tariff increases, such as those that import heavily from China or that are heavily integrated in the Chinese supply chain, could be at risk,” said Kamal Tamboli, Senior U.S. Equities Strategist at J.P. Morgan. On the other hand, companies in “safe haven” sectors with less exposure to tariffs, such as software and U.S. defense, could be less affected.

A Trump victory could also have ramifications for energy stocks. “Many of the plans being pushed by Republicans today seem to suggest they wish to tackle inflation by pumping more barrels of oil. Conversely, there could be rollbacks in new energy legislation, and open-ended EV subsidies could be under more scrutiny,” Tamboli added.  

3. Trade and immigration will likely have more immediate impact than fiscal policy

Before Biden withdrew from the upcoming election, expectations of a possible “red sweep” were growing. However, with a divided Congress looking more likely, there could be legislative delays, especially as both parties have vastly different fiscal agendas.

“Now that we may have a close election outcome, we think that fiscal policy will be hard to implement and slow in coming. Any fiscal changes will likely come in 2026,” Kasman said. “Instead, regulatory and administrative policy, trade and immigration will likely be the big moving parts for the early days of the new administration.”

A Republican victory could result in the closure of U.S. borders to immigrants and tariffs on foreign goods. “These are negative supply shocks and could do some damage to growth,” Kasman noted. 

4. Reactions in the rates markets have been muted

Biden’s withdrawal has so far had limited bearing on the rates markets, where reaction has been fairly muted. “Front-end yields are a couple of basis points higher, while long-end yields are a couple of basis points lower. It looks like the markets are treating this as a higher probability of being a tighter race,” observed Jay Barry, Co-Head of U.S. Rates Strategy at J.P. Morgan. 

Overall, expectations for Fed cuts have been, and continue to be, the key driver of the rates markets. “In the past, we’ve seen halting instances where the elections have impacted the Treasury curve, but that has been fleeting in nature,” Barry added. “With the election still three-and-a-half months away and not knowing what the down-ballot races look like, the Treasury market is mainly trading off of Fed expectations.”