Implications of Presidency
I hope this update finds you safe and healthy.
While there is plenty of noteworthy news, such as record high COVID-19 cases, this email will focus on the US election.
Democratic nominee and former Vice President Joe Biden looks to have an edge in the race, leading President Donald Trump by about seven percentage points in recent national polls. The contest for the U.S. Senate –key to a potential Biden administration’s ability to implement its agenda –appears close to a tossup. I see three plausible scenarios:
1) A Democratic sweep of the White House and Congress (with Democrats winning control of the Senate)
2) A Biden win with a divided Congress
3) A status quo Trump win
The implications of a Biden presidency
Positive initiatives for the economy.
Biden is expected to deliver larger fiscal stimulus for the economy. He is seen as less protectionist, and favours more immigration. In addition, the aforementioned virus control policies represent a potential economic positive over the medium term.
Negative initiatives for the economy.
Biden is expected to deliver higher taxes, increased regulations, and take a stronger stance on taming COVID-19.
Delayed and contested election outcome
It is likely that a final vote count from the elections will not be completed until several days after November 3rd. Even with delay, markets may effectively know the outcome based on the results from key states. But if the elections are very close and it is not possible to determine the outcome until all the votes are in and legal disputes settled, financial markets will be roiled by potentially weeks of political and policy uncertainty.
Prolonged uncertainty as to the outcome and the likelihood of a divided government would be negative for risk assets and associated with a bull flattening of Treasury curve as investors favour safe-haven assets. The Federal Reserve, that meets on November 4th, may provide further liquidity to limit market disruption. The US dollar may modestly gain from broader ‘risk-off’ sentiment in global markets.
The overriding characteristic of a delayed and contested outcome to the US elections would be market volatility, some of which is already reflected in VIX futures contracts for November and December.
Of all the articles I have come cross the following one I wanted to share with you.
Don't mix politics and your portfolio
By: Ben Carlson
With the presidential election just days away, we continue to be inundated with predictions about how the winner will impact the markets and the economy. It may be entertaining to guess how the outcome of the election will impact your wealth, but this becomes a futile exercise once you realize how much there is that we don’t know about what comes next. Not only do we not know who is going to win but also:
We don’t know which policies they’re going to implement while in office.
We don’t know how amenable the other party will be to those policies.
We don’t know how the person in office will impact consumer spending and sentiment in the economy.
We don’t know which sectors or industries will be the biggest winners and losers.
We don’t know how investors will react or what they have already priced in regarding the outcome of the election.
When Trump got elected, there were pundits and investors galore predicting an enormous market crash. Instead, stocks rose steadily for most of his first term until the pandemic hit. There have been more than 130 new all-time highs on the S&P 500 during Trump’s tenure.
When Obama got elected, there were people predicting, “[His] Radicalism Is Killing the Dow.” Instead, stocks set off in 2009 on a bull market that lasted for the entirety of the next decade. There were nearly 130 new all-time highs on the S&P 500 during Obama’s tenure.
The long-term trend of the stock market has been up and to the right no matter who the President is:
And no President in modern history has been able to prevent the stock market from falling either:
The truth is politicians have far less control over the stock market than most people would like to believe. Policy outcomes often show up on a lag and come with unintended consequences. As we’ve seen this year, the economy and the stock market are not always on the same page. It might give you an illusion of control to know your party holds the nation’s highest office, but no one person is bigger than the stock market. In addition, much of the performance in the stock market under any administration depends on where we are in the cycle when they take office. Bill Clinton and Ronald Reagan both took office at opportune times during one of the biggest bull markets in history. On the other hand, Franklin D. Roosevelt’s time in office was bookended by the Great Depression and WWII, while George W. Bush took over just before 9/11 and ended his term during the Great Financial Crisis.
Regardless of who wins next month it’s important to keep politics out of your portfolio. Money decisions are already rife with emotions, biases, and blind spots. Bringing politics into this equation only amplifies those emotions and makes it nearly impossible to make rational clearheaded decisions.
If you’re thinking about selling all of your stocks based on the winner of the presidential election, be sure to ask yourself the following questions first:
If I sell out of the market because of the President, does that mean I have to stay out of the market until a new President takes over?
If I sell out of the market because of the President and the stock market moves higher will I buy back in or continue to sit on the sidelines?
If I sell out of the market because of the President and the stock market crashes will I buy in at lower prices or continue to sit it out based on my political beliefs?
If I sell out of the market because of the President and things don’t turn out as bad as I originally thought, how will I know I was wrong?
There are never any easy answers when it comes to handicapping the markets because no one knows what the future holds.
There are only two things I’m certain of when it comes to mixing politics with investing decisions: (1) The stock market will go up and down no matter who the President is, and (2) Investing your money based on how you vote in November will not result in levelheaded financial decisions.
Article from; Ben Carlson
I hope you continue to remain safe and healthy as Fall nears an end.
If you should have any questions or concerns please do not hesitate to let me know.
With best regards,
Matthew Bishop
Investment Funds Advisor
By the Numbers. Source: National Bank – Index returns are for information purposes only and do not represent actual strategy or fund performance and do not reflect the impact of management fees, transaction costs or expenses and investors cannot invest directly in any index.
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