The World Will  (…) End with the Next Election (NOT)

As we approach the November 3 election, I thought it might be useful to submit my thoughts on how different outcomes may affect the financial markets. These are the thoughts of someone with 46 years active involvement in financial markets: Markets have an uncanny way of “knowing” what the outcome will be, but this election is scrambled eggs so it’s hard to believe markets know what is coming. Let’s consider some possibilities:

Until the Election, volatility. This is an obvious guess.  A well balanced portfolio such as those constructed for clients is a responsible place to be right now.

Under the assumption Trump is replaced by Biden and…
Democrats win both houses of Congress 

  • Equities sell off in 4th quarter as tax selling dominates and markets factor in higher corporate taxes to come in 2021.
  • Infrastructure stocks soar on expectation of massive government financed projects.
  • Big Tech weaker, as Dems will want to break up tech giants
  • ESG (Environmental, Social, Governance) and renewable related stocks should do well.
  • Housing and Home Improvement continue strong.
  • Energy production company shares fall further anticipating failures, as the industry cannot expect help from the Federal government and investors anticipate greater regulation, especially environmental regulation.
  • Dollar weakens as deficit spending expands
  • In the longer run, U.S. Stocks, especially multinationals trend higher because, despite anti-business proposals from the socialist minority in the Democratic party, the U.S. Supreme Court will strike down the more radical proposals, even if Biden signs them into law, which is doubtful.

Biden wins and….
Republicans hold on to Senate:

  • Equity Rally, as corporate tax increase less likely or moderate
  • Equities rally as investors anticipate more predictability from White House
  • Big Tech neutral – both parties complain about tech company monopolies, but are likely to fight one another and water down any attempt to break up or heavily regulate tech giants
  • Energy stocks enjoy relief rally then fizzle as worldwide glut continues
  • Housing and Home Improvement continue strong
  • Infrastructure related companies – building supply, heavy equipment, steel continue their pre-election rally, as this is an issue upon which both Dems and Republicans can agree
  • Interest rates remain low – bonds rally, especially high yield bonds, as Federal deficit spending will be held somewhat in check

Trump Wins and…
Congress remains split between the two parties

  • Big Tech steady but shares of Trump’s “enemies” (i.e. Amazon and Facebook) feel pressure
  • Energy Stocks Rally, expecting more executive action to delay regulation vs fracking, methane emissions, new pipeline projects
  • Housing and home improvement continue strong
  • Travel and leisure stocks recover as Federal Govt  supports states that want to  re-open
  • Look to M & A opportunities especially in Energy, Travel and Leisure as Covid-weak companies disappear

Trump Wins, Republicans take House and Retain Senate

  • Equities soar anticipating lower taxes and still less regulation
  • Energy stocks soar- no Federal regulatory risk, pipelines especially strong
  • Housing stocks soar
  • Tech stocks flatten to weaken as Republicans seek revenge
  • Dollar strengthens as a modicum of fiscal discipline anticipated
  • Foreign stocks fall – world trade threatened by Trump’s  widening trade war 

Please note these guesses do not express a preference, only an attempt at making some educated guesses.