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United States - The upcoming election
and how that will affect the financial markets
July 2020
Introduction
With fewer than 100 days until the Presidential Election in the United States of America, this is a vital question to address. However, rather than take a political view, we wanted to present our best guess as to what might happen in the case that either Donald Trump or Joe Biden wins the presidency. There are certainly extreme viewpoints at both ends of the political spectrum: the far left believes that a Trump win will usher in a fascist state where all political dissent will be extrajudicially crushed with most, if not all, of the Bill of Rights thrown out the window; conversely, the far right thinks that a Biden win will throw open the borders, bring businesses under government control, with crushingly high taxation, food shortages and a wide-spread proliferation of social housing. As with all things, there is probably a middle ground between these two extremes.
According to fivethirtyeight.com, one of the most well-respected pollsters in the US, 100 days from the election, Biden currently leads Trump on the national level by 8 points, up from a 3.6 point difference on April 13th.
By comparison, in 2016 Hillary Clinton was leading by six points at the same time. The main difference between 2016 and now, comes in the Rustbelt and Swing States, where Biden has up to a 7.4% lead. For this reason, a Biden win is currently more likely.
The money race is often discussed when looking at US elections and this year is no different: many donors were said to have held off donating until the polling became more apparent. At the end of June, President Trump held a significant lead in the donations department, but this is not uncommon for an incumbent.
However, the break down of this money according to Federal Election Commission filings makes for interesting reading: the Biden campaign saw small dollar donations of $32,091,500, large dollar donations (>$200) of $31,143,585 with transfers, loans and other donations of $180,151; the Trump campaign has received small dollar donations of $11,861,719, large dollar donations (>$200) of $17,907,782 and transfers, loans or other donations of $25,471,973.
The economy will likely not play as much of a roll in the election as in previous years. Wallstreet executives are starting to move over to the Biden camp with their checkbooks. Looking at two recent polls regarding the economy, a Wall Street Journal/NBC News poll found that among independent voters who will likely decide the election, 54% said they “trusted Trump to handle the economy” however a 45% said they would vote for Biden while only 35% said Trump. A CNBC June poll showed that Biden leads Trump on all issues except the economy.
Graphic courtesy of CNBC
If Biden wins, the knee jerk reaction is that corporate taxes might rise which would hamper profits. The popular economic view of Republican regimes as more “business friendly” versus Democrat regimes as posing a risk to assets is too simplistic. A deeper look at the issue performed by Bank of America indicates that a President Biden (the senator from MBNA) may not be so bad for the markets and economy after all. The report's writers found that “a Biden victory would have complex, mixed effects on the bond, stock and foreign exchange markets, as well as the underlying economy". However, they concluded that "the overall impact of a Democratic victory could be positive, and would most likely include a steadier and more vigorous handling of the coronavirus crisis and a more open approach to international trade.”
A Trump re-election will undoubtedly be more of the same: President Trump is quite predictable. If the Republicans can hold the Senate and Mitch McConnel stays in power, little will likely be accomplished by Congress. Many Executive Orders will be written by Trump, and several will likely be challenged by the House in the courts but will have no teeth to overturn them in the Senate. A continued “America First” policy will test international relationships, most importantly, with Chinese trade relations. “Business” not America, will be put first, as was seen with the Coronavirus stimulus. Tax cuts for the wealthy will be pushed to further help the “Job Creators” and, to fund these tax cuts, there will likely be proposed cuts to Medicare and Medicaid and to save the Social Security system from both sides of the aisle.
The US remains intensely politically divided, so much so that the current uncertainty has had a detrimental effect on the economy and markets. No matter who wins, there will at least be some short term stability and confidence in what will happen next: markets inherently like stability and, thus, either candidate winning will have a positive impact on business and investments. Notwithstanding, the speed at which the COVID crisis ends will certainly determine how fast the economy recovers. Although the political extremes see such different likely futures, neither of their predictions will come true and a more moderate business-friendly outcome will no doubt result.
About the author(s)
Stephen Masters is an independent analyst, writer, and economist. Harold Alby is a managing director and chief operating officer at Inova Capital. Justin Inniss is a managing director at Inova Capital.For more details on our insights please get in touch with us at Inova Capital AG on +41 415616905. Inquire about our ideas and nowcasting capabilities.