Despite these areas of bipartisan support in Washington, the prospect of a Democratic sweep, or “Blue Wave”, is a scenario investors should keep an eye on. In this scenario, Biden wins the presidency, the Democrats gain control of the Senate, and also retain control of the House. It seems that the market’s biggest worry is that a Blue Wave would lead to a sudden and dramatic shift in policy towards increased taxation and regulation. Some areas of concern include drastic changes to the US health care system, increased regulation and scrutiny over large US tech companies, and higher corporate and income taxes.
While it is acknowledged that US elections can create near-term uncertainty for investors, we (always) believe there is still opportunity to be found for our clients. We believe health care and technology are two sectors that will continue to see long-term growth, as structural changes in the underlying economy are supportive for these areas. Further, we believe a pickup in both the US and global economy will provide a strong foundation for cyclical industries and value assets to get a bid. We continue to like the prospects of select companies with strong earnings and free cash flow, as well as strong business models and cash reserves.
Regardless of the electoral outcome, we believe investors should prepare their portfolios for periods of market volatility going forward, especially as the global economy waits for a COVID-19 vaccine. Markets like certainty, and there are currently many lingering risks. We recommend to investors to remain vigilant and ready to “ride the wave”, whichever way this election goes.
“Down to the Wire”: The 2020 US Presidential Election and the US Financial Markets
With the 2020 US presidential election just weeks away, we take a look at the possible outcomes, and what they could all mean for the US financial markets.
“A Two Horse Race” – The 2020 US Presidential Election
Although many believe that a Biden victory would lead to an end of the Trump administration’s supportive business policies, we don’t think that is necessarily the case. In our view, we believe that whichever administration comes to power, they will still have to continue to tackle the worst national crisis in recent history – the ongoing COVID-19 pandemic and the US economic recovery. Given the current electoral landscape, we think a Biden administration with a split US government may be the most favorable scenario for markets, as this would only lead to incremental policy shifts from the current status quo.
With that being said, we don’t believe a split Congress coupled with whoever candidate is president means that no meaningful US legislation will pass. On the contrary, despite the polarized political climate, we do see evidence of bipartisan support between the Democrats and Republicans on policies related to infrastructure spending, trade, and additional fiscal support for the economy.
“Coming Together”– Areas of Bipartisanship
We see strong support between both parties to bring manufacturing and supply chains back to the US. The COVID-19 pandemic exposed many weaknesses in global supply chains, specifically within vital sectors such as health care, manufacturing, industrials, and food production, and a greater need to move supply chains back onshore to be closer to domestic intermediaries and consumers. Regardless of who is president, we expect to see strong bipartisan support in Washington to bring jobs back home, which in turn, will be a strong structural growth catalyst for US labor markets.
On the topic of US trade policy, there is strong bipartisan support to protect US intellectual property in the global markets. We believe that in the event of a Biden win, his administration would continue to pressure China to ensure a level playing field for technology globally, despite a perception that he might take a softer approach. Despite who is in office, we still believe trade tensions will be a point of contention for investors to be mindful of.
Lastly, going into 2021, we believe infrastructure spending will be top of the list for the new administration. Going into the new year, we expect to see rumblings in Washington over new legislation over a much-needed upgrade of the nation’s bridges, airports, roads, and rail networks. In addition, any motion that is tabled would also include significant funding to improve the US’s technology infrastructure, including greater access to 5G wireless technology and broadband networks.
“The Blue Wave Cometh?” – A Democratic Sweep?
Despite these areas of bipartisan support in Washington, the prospect of a Democratic sweep, or “Blue Wave”, is a scenario investors should keep an eye on. In this scenario, Biden wins the presidency, the Democrats gain control of the Senate, and also retain control of the House. It seems that the market’s biggest worry is that a Blue Wave would lead to a sudden and dramatic shift in policy towards increased taxation and regulation. Some areas of concern include drastic changes to the US health care system, increased regulation and scrutiny over large US tech companies, and higher corporate and income taxes.
While it is acknowledged that US elections can create near-term uncertainty for investors, we (always) believe there is still opportunity to be found for our clients. We believe health care and technology are two sectors that will continue to see long-term growth, as structural changes in the underlying economy are supportive for these areas. Further, we believe a pickup in both the US and global economy will provide a strong foundation for cyclical industries and value assets to get a bid. We continue to like the prospects of select companies with strong earnings and free cash flow, as well as strong business models and cash reserves.
Regardless of the electoral outcome, we believe investors should prepare their portfolios for periods of market volatility going forward, especially as the global economy waits for a COVID-19 vaccine. Markets like certainty, and there are currently many lingering risks. We recommend to investors to remain vigilant and ready to “ride the wave”, whichever way this election goes.
Related Market Commentary
“From the Outside Looking in”: The 2020 US Presidential Election and Europe
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