2020 US elections: The race is on
How will stock markets react to the possibility of a President Joe Biden in the White House?
On 3 November, the US will choose its president for the next four years. Currently, momentum is clearly with the presumptive Democratic candidate, Joe Biden. Donald Trump’s handling of the pandemic and protests after the death of George Floyd have eroded the Republican president’s approval rating, causing him to lose ground in poll after poll.
Biden has always held a lead in national polls, but that advantage in poll averages is growing noticeably stronger. Even more worrying from Trump’s perspective are that polls in swing states are also shifting significantly towards Biden, along with losses of support from older voters and the president’s most reliable base of ‘white, no college’ voters.
An electoral collage
Nevertheless, don’t rule out Trump (again)! Our economists’ base case remains that it will be a tight race to the end. The economy may well look stronger by November, as it bounces back from the COVID-19 induced shutdown. Trump’s strategy, once again, seems to be all about turning out his core supporters. If he can secure all of the 35-40% of voters required to back him no matter what, then Biden needs to whip up much more excitement from the remaining electorate than currently to beat his opponent.
It is still early in the race and much can still happen. To mention only a few wild cards: What will the economy look like in late October? What if there is a second wave in the autumn? What if a significant number of people get sick following Trump rallies? What if states experience lockdowns on election day? What if COVID-19 results in a different turnout among age groups? What if Trump or Biden themselves become ill?
Blue wave versus Trump 2.0
What does all this mean for investors? If Trump wins, and the Democrats hold the House of Representatives, our Asset Allocation team believes market dynamics would be broadly unchanged. Similarly, under a President Biden with a Republican Senate, they expect the status quo would also be maintained.
Yet a Biden victory of any flavour could still bring a few market-related policy changes. America’s China policy would largely remain unchanged in substance, in the team’s view, but could become less volatile in style. A multilateral approach to China should make an all-out trade war with the EU less likely. Tech regulation should continue to tighten gradually but, unless personnel choices say otherwise, this has not been a policy area about which Biden has shown particular passion. Generally, we are expecting the policy direction to be more social, more green and more redistributive.
On the other hand, a ‘Blue Wave’ in which Democrats control Washington would be the most market-moving outcome, in the Asset Allocation team’s view. From a market perspective, this would imply higher taxes on companies and more government spending. Even if these two ultimately balance each other out, the market’s gut reaction could be negative.
And what would Trump 2.0 look like? The desire to be re-elected has arguably been a moderating force on Trump’s policy choices around issues such as the trade war. But in a second term this factor disappears. So, what does Trump want to achieve with a second term? Power? Policy? Legacy? We don’t have a clear answer for this question yet.
Either way, it is unlikely that Trump 2.0 will be a calmer presidency than Trump 1.0.
Remember, the value of any investment is not guaranteed. The value of investments and any income received from can go down as well as up and you may not get back as much as you had originally invested.