Certainly, this election season has been anything but conventional. If current results stand with Joe Biden as the President Elect of the 2020 Election, what could this mean for investors and markets moving forward?
The key dates for finalizing election results are Dec. 8, which is the federal “safe harbor” deadline for states to determine their presidential electors, and Dec. 14, which is the date the Electoral College actually meets, and electors cast their ballots. The potential of a so-called “blue wave” scenario in which Joe Biden wins the White House and Democrats win the majority in the Senate while maintaining their majority in the House of Representatives does not appear to be forthcoming based on election results thus far. Control of the Senate comes down to two races in Georgia, which are slated for a runoff election on Jan. 5. It will take some time after the dust settles to get a better understanding of what the incoming administration and Congress will be planning, what issues will be driving the agenda and the timing of any new initiatives. With the likelihood of a split Congress, it could be difficult to enact big, sweeping changes.
Here are some key issues that matter to investors:
COVID-19 Economic Recovery: A critical piece of legislation that markets are factoring in is the passage of additional stimulus to aid in economic recovery due to the COVID-19 outbreak. The path of the pandemic and its continuing impact on the economy could determine the size of the monetary and fiscal stimulus needed to get the country back on track. What is unclear is whether it will happen during the lame-duck session of Congress in December, or early in 2021, once the new Congress is in session. Markets are also factoring in a safe and effective vaccine in the near future. If the stimulus package continues to get bogged down by partisan politics, or there are delays in the approval of a vaccine, it could rattle already fragile markets.
Taxes: With a Biden presidency, investors are very focused on the potential for tax increases on businesses and wealthy individuals, along with proposed capital gains tax increases, and how that could affect the economy. Some believe that this could weigh on production, earnings, and ultimately, market returns. Keep in mind that there is a long road from campaign proposals to actual legislation being enacted. A divided Congress drastically lessens the probability of sweeping tax legislation.
Infrastructure Spending: Both parties appear to support increased spending on the nation’s deteriorating infrastructure. This includes improvements to roads, bridges, ports, airports, broadband capacity and other projects, but the two sides have been unable to agree on how much spending is necessary and how to pay for it. The economy needs reliable infrastructure to connect supply chains and to move goods and services. It also supports workers, providing millions of jobs each year in building and maintenance.
Equity Markets: Equity markets are likely to continue benefiting from a low interest rate environment. Large companies with stable cash flows and strong balance sheets benefit from cheaper debt financing. Growth-oriented stocks are appealing with rates at historic lows. However, periods of extreme volatility should be expected given the economic uncertainty. In general, sectors and companies that potentially stand to benefit from a left leaning government include health care, environmentally focused companies (solar, wind, electric, etc.), discount retailers and small technology firms.
Investors should remain focused on the big picture and not base portfolio allocation decisions on political outcomes. Make sure your portfolio is consistent with your goals and risk tolerance. Historically, markets have tended to power through some of the most tumultuous election periods. Long term investors are better served by having a well-diversified portfolio with exposure to many asset classes. This can help investors weather a variety of potential outcomes. Reach out to the financial advisors at Sustainable Wealth Management with any questions regarding risk tolerance or diversification of your portfolio.
Linde Carroll, CFP® is an investment consultant at the Vancouver-based investment management and financial planning firm Sustainable Wealth Management. She can be reached at firstname.lastname@example.org.
This material is intended to provide general financial education and reflects the personal opinions, viewpoints, and analysis of Sustainable Wealth Management, Inc.’s employees and is not written or intended as investment, tax or legal advice and may not be relied upon for purposes of avoiding any Federal tax penalties. The views reflected in the commentary are subject to change at any time without notice.