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US Elections – framing the market debate

23 July 2020
2 Minute Read

This is the first of a series of articles looking at the US elections on 3 November 2020 and their implications for the economy, financial markets and sectors.

  • While market participants tend to focus on whether the next US president is going to be Trump or Biden, we think the key debate is whether the elections will deliver a divided or a single-party, unified government. The former tends to bring about extended legislative gridlocks. The latter raises the possibility of significant policy change.
  • A unified Trump government would seek to boost US growth via tax cuts and, depending on the extent of its majority, perhaps further deregulate the financial and energy sectors. The US dollar could hold its value or strengthen eventually. The yield curve is likely to steepen in relative terms, providing some support to banks. But, with monetary policy capping interest rates, any rise in bond yields is likely to be quite small.
  • A unified Biden government would boost spending. Infrastructure and managed healthcare should benefit. However, corporate taxes would increase – a direct hit to corporate earnings. As with a unified Trump government, Fed action is likely to moderate any rate rise, so any curve steepening (and any benefit for the banks) is likely to be limited. Reform and regulation may negatively affect pharmaceuticals, the tech sector and financials.
  • Polls put Biden ahead of Trump, with a possibility of the Democrats retaking the Senate – albeit with a slim majority. Cooperation among moderates is likely to be required. While corporate tax hikes are a negative from an earnings perspective, there are also positives from demand-boosting fiscal policies. China scepticism is a rare non-bipartisan issue.

While markets have understandably focused mostly on the virus outbreak, which is a critical issue from a short-term perspective, the US presidential and congressional elections matter a great deal from a longer-term point of view. The results are likely to impact the economy, financial markets and key sectors.

This is not only because they will ultimately dictate what kind of fiscal boost could be used in early 2021 to mitigate the impact of COVID-19. It is also because a Democratic sweep – the outcome polls currently forecast to be the most likely – may result in extra public investment, which could have a meaningful multiplier effect on economic growth. But it could also result in higher corporate taxes – a direct hit to earnings. In addition, Biden’s policy platform could lead to greater government involvement in healthcare and measures to fight climate change.


Source: Quintet, National Governments

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Daniele Antonucci
Chief Economist & Macro Strategist

James Purcell
Group Head of ESG, Sustainable and Impact Investing

Bill Street
Group Chief Investment Officer

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