Fetching results...
Menu

US Elections – framing the market debate

23 July 2020
2 Minute Read
SHARE

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.

WHAT YOU NEED TO KNOW
  • 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.

US ELECTIONS LIKELY TO DETERMINE QUALITY AND QUANTITY OF FISCAL STIMULUS

Source: Quintet, National Governments

For those clients who have access to My Brown Shipley you can check your portfolio valuation online. If you have any questions, please contact your usual Brown Shipley adviser.

Authors

Daniele Antonucci
Chief Economist & Macro Strategist

James Purcell
Group Head of ESG, Sustainable and Impact Investing

Bill Street
Group Chief Investment Officer

Non-Independent Research

The information contained in this article is defined as non-independent research because it has not been prepared in accordance with the legal requirements designed to promote the independence of investment research, including any prohibition on dealing ahead of the dissemination of this information.

 

How to Use this Information

This article contains general information only and is not intended to constitute financial or other professional advice or a recommendation that any recipient of this information should make any particular investment decision. Always consult a suitably qualified financial advisor on any specific financial matter or problem that you have.

 

Except insofar as liability under any statute cannot be excluded, neither Brown Shipley nor any employee or associate of them accepts any liability (whether arising in contract, tort, negligence or otherwise) for any error or omission in this article or for any resulting loss or damage whether direct, indirect, consequential or otherwise suffered by the recipient of this article.

 

Investment Risk

Investing in stocks either directly or indirectly carries investment risk. The value of equity based investments may go down as well as up over time due to factors such as, market volatility, interest rates, and general economic conditions.

© Brown Shipley July 2020 reproduction strictly prohibited.