Wealth Management: Market Perspective – US elections and portfolios

Kevin Gardiner, Global Investment Strategist, Wealth Management

Circumstances matter more than who wins

What might the 2020 US Presidential election mean for portfolios?

The process starts in early February with the first primary, the crucial Iowa Caucus, and is likely to be noisier than usual given impeachment proceedings, unresolved trade tensions and the Democrats' collectivist lurch.

While there are many Democrat contenders - Michael Bloomberg has recently thrown his hat into the ring - the field should narrow as the primaries progress. The latest opinion polls suggest that Joe Biden will most likely prevail over Elizabeth Warren, and face President Trump in the electoral race.

POTUS may be lagging in terms of popularity, but statistically the incumbent has had the advantage. The distribution of Electoral College votes - the first candidate to receive 270 out of 538 electors wins the White House - suggests that candidates may not need to get the most votes (Hilary Clinton won the popular vote in 2016).

We might think that the Republicans' probusiness credentials might boost growth and capital markets. In fact, on average, in the post- WWII period Republican presidents oversaw over sub-par growth and equity market returns. Circumstances clearly matter as much as the president's political complexion.

Meanwhile, President Trump's first term has not been the financial calamity many anticipated. US equities have returned 12% a year (after inflation) - comparing favourably with the post-WWII average of 8% a year - while the US economy has expanded respectably despite the somewhat lengthy nature of this cycle.

But circumstances have helped. Equities have been buoyed by loose monetary policy and business tax cuts. Whoever wins the White House, it is hard to imagine that such a favourable economic backdrop will persist for another four years.

Market Perspective - December 2019 - Figure 3

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