US presidential election - Polls, policies and portfolio positioning
CIO MONTHLY | AUGUST 2020
It’s too early to be confident about the result or the policy outcomes of the US presidential election. While the odds point to a Biden victory, what will be key for equity markets is whether Congress is divided or unified (and the state of the economy). Given each side’s disparate policies, we expect equity sector impacts to dominate the direction of the broader index, with energy, tech and healthcare most exposed.
- While the latest polls indicate that Biden commands a solid lead, political analysts typically view the race as much closer, with BCA Research putting the odds of a Trump victory at 45%.
- Trump and Biden have quite divergent economic and fiscal policy platforms. Trump is likely to maintain his focus on ‘America first’ in trade and energy policy, while domestically seek to lower taxes and reduce regulation. In contrast, Biden will most likely focus spending on healthcare coverage and mitigating climate risk. He is likely to partly fund this through increased personal and corporate taxes. Generally, both agree on the need for more infrastructure spending.
- The results that would likely lead to the greatest change are a blue wave (where Biden wins and Democrats sweep Congress) or a red wave (where Trump wins and Republicans sweep Congress), as each of these would facilitate implementation of each side’s divergent fiscal policy platforms. However, neither appears likely to impact markets more than COVID-19, or arguably 2019’s trade war. But, they would most likely create winners and losers at the sector level.
- To date, 2020 has highlighted the benefit of maintaining discipline in one’s strategic asset allocation; of staying invested and avoiding attempts to time the market; and ensuring portfolios are appropriately diversified across both traditional and alternative assets. Given uncertainty around the path of the virus, elevated geo-political tension, and challenging valuations, we do not view the near term as amenable to engaging big tactical bets, either from a bullish or a bearish standpoint.