Strategy team: Kevin Gardiner
With the US elections now just a few days away, we pause to consider what implications the results may have for investors.
The result… is certainly not a foregone conclusion. Biden still has an 8 percentage point lead in the national polls, but: the polls are fallible; his lead in the key battleground states that will determine the electoral college result is perhaps half that; and the economy has been improving faster than many realise, which will help Trump. The Democrats’ chances of winning the Senate – and overall control of Congress – are more finely balanced again. A Biden presidency without Congressional control would struggle to get things done.
The loser… will concede. It may take a while, and they may not do so graciously, but when the result is clear the loser will have to accept it. If there isn’t a clear result, there are procedures for deciding what happens next (with the Speaker of the House as a possible caretaker).
The policies… may not pose as big a threat to investment portfolios as initially feared. Economically, a Biden presidency would shift towards collectivism and internationalism (relative to the Trump administration – trade relations with China will remain more tense than they were pre-2016), but even today’s Democratic party is still less collectivist than most European socialist parties. Higher business taxes and more regulation are bad for corporate investments – the latter could particularly hurt financials, big (ie dominant) tech and social media names, and pharmaceuticals. But the taxes will be recycled as green/infrastructure/healthcare support, which will limit the net losses to business, and big tech/comms companies are facing (understandable) regulatory scrutiny to begin with.
The relevance… of elections to portfolios is often overstated. There are many moving parts in the investment process, and other things often matter more. We suspect, for example, that continuing economic recovery from the suppression of covid-19 would more than offset any market misgivings over a change in US administration. The table reminds us that US markets and the economy have often done better when there has been a Democrat in the White House – not because of their policies, but because Democratic presidents often had the good fortune to be in office in good times (such as the ‘sixties), while Republicans had the misfortune to preside in more testing times (such as the mid ’seventies and early ‘noughties).