“Life is like riding a bicycle, to keep your balance, you must keep moving.” ~ Albert Einstein
Question: What are your thoughts on how the outcome of the presidential election could impact the economy and markets?
Answer: With a little over one month to go before we cast our ballots, this is a popular question. Someone will win the election and become our President. There are additional election-related questions that could also influence how investors might position themselves for November and beyond.
Depending on how you feel about national polls, the latest polling has former Vice President Joe Biden up by approximately eight points over President Donald Trump. In key swing states like Florida, Pennsylvania, Michigan and Wisconsin, Trump trails by an average of five points at the time this is being written on September 23, 2020. Expect polls to tighten as we get closer to election day.
Let’s look at the implications of three possible scenarios a) Trump wins, b) Biden wins with a Split Congress, or c) Biden wins with Democrats controlling the Senate, the so-called Blue Wave:
- A Trump Win would likely mean an economic status quo. Expect continued low-tax/low regulatory environment with increased spending and geopolitical uncertainty. Markets like lower taxes but do not respond well to trade tensions. Possible winners would be defense, retail, travel, materials, and infrastructure while companies relying on global trade could be restrained.
- A Biden and Split Congress could lead to somewhat higher taxes and more regulation. Expect increased spending and a somewhat more predictable trade/tariff outlook. Renewables, transportation, infrastructure and climate–related companies could benefit. Technology, telecom and pharmaceuticals would likely feel a hit.
- The Blue Wave would likely bring higher taxes, spending and more regulation. Risk assessment effect for the economy and markets would likely be moderately negative to negative. The blue wave could lead to the removal of the Senate filibuster that would reduce the need for bipartisan compromise. Also, Biden’s potential cabinet picks may not be well-received by financial markets. There’s talk that Senator Elizabeth Warren could be Treasury Secretary. Sectors that could face greater regulation or less funding have in general underperformed thus far.
The expected increase in mail-in ballots is likely the biggest risk that markets are focused on currently. The challenge of processing all the ballots by the deadline, and the potential for results to be contested in a close election is overpowering. It’s possible that the process could take months without a strong legal precedent for resolution. This election cycle is unique in that we’re also focused on COVID-19 developments, fiscal and monetary policies as well as employment issues. Even the election process itself is a risk. We do know that there is virtually no progress on a new stimulus deal, yet there has been an agreement to keep the government funded and running through December 11, 2020. Our elected officials in Washington D.C. will certainly be focused on filling the seat in the Supreme Court left by the passing of Justice Ruth Bader Ginsberg, adding to the uncertainty and making political risk a market disrupter.
There’s a lot riding on the outcome of the 2020 election which serves as a powerful reminder to heighten awareness. Market volatility in response to the upcoming election is expected and could continue even following the election. Focusing on businesses that continue to innovate and become more productive as they adapt is a long-term approach to investing while focusing on the overall economy and market outcomes. This particular election may provide an excellent opportunity to work with your trusted financial professional team, or to put one in place to help you with the important wealth management planning considerations of today, into 2021 and beyond. Stay focused and plan accordingly.
There is no assurance the trends mentioned will continue or that the forecasts discussed will be realized. Past performance may not be indicative of future results. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. The opinions expressed are those of the writer as of September 23, 2020, but not necessarily those of Raymond James and Associates, and subject to change at any time. All information provided herein is for informational purposes only and is not intended to be, and should not be interpreted as, an offer, solicitation, or recommendation to buy or sell or otherwise invest in any of the securities/sectors/countries that may be mentioned.
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