US Election

Year 2020 so far has been roller coaster ride. From the start of the year with Trump’s impeachment to one of the worst pandemic Covid-19 followed by US-China tension. This year has kept us on toes from time to time. And now we are one month away of much anticipated US election. By many means this Election is important. As per public survey a record 83% of respondents are saying that it matters. This makes us believe that it will be historic Election with probably highest on record of voter turnout.

Trump VS Biden. It is not just election between two parties or two people. But it is between two different thought process. Higher Taxes Vs Lower Taxes and many more points. But the biggest question right now is what will happen to market if Trump losses and Biden wins or vice versa.

Well to find that answer we dived into history to understand the market impacts of Elections. Hype created by Republican party that if they do not get elected again, market corrections is false. Historically market has performed well under both the parties. For example, the S&P 500 index has returned over 200% under both Clinton and Obama administrations. Since 1957 irrespective Democratic or

Republican President market has done well over period.

                      If Trump gets reelected than he will continue with his agenda of America first protectionism. His major focus will be on onshoring manufacturing back to the US and reducing the trade deficit with trading partners. Sectors like Auto and Financial will be the biggest beneficiaries of it. His tariff plans and lower taxes will make this sector even more attractive. Lower corporate taxes will be making market cheaper on forward multiples. This will make US as one of the favorite investment destinations. And What happens if Joe Biden wins?

Let us discuss the possibility and impact on sectors if Biden Wins. Biden stand representing as democratic nominee and we see some positive and negative if Biden wins the election.

There is going to be tremendous policy uncertainty. And we think there are going to be winners and losers. And this is likely to lead to an outcome, the most dispersed outcome within financial markets. So, let us talk about the negatives first and then the positives second.

Negative side, there could be a higher corporate tax rate. Certainly, higher taxes for higher income earning individuals and he has talked about restricting, if not banning, fracking on public lands. And there is a risk that you are going to see much more of regulation within financial services.

On the positive side, from a market perspective, there is going to be big infrastructure spends. He has talked about decarbonizing the electric grid by 2035. Now that is probably a bit ambitious. And he has mentioned about major investments in green energy industries. And so, companies that have gearing or exposure that do very, very well.

On the health care front, there is two phases. There is an expansion of ACA (Affordable Care Act). That is probably good for health care providers. However, if he goes to “health care for all or Medicare for All”, which some of the progressive wing of the Democratic party wants, it would be quite negative.

And finally, we think pharma needs to be being watched as limits on drug pricing could come in, which would be negative for pharma companies.

This election can leave us with different outcome for markets. Tons of uncertainty could drag on for weeks. In 2000, the markets sold off 8% when that happened. There is possibility of 5% to 15% selloff if the markets tried to deal with uncertainty with either candidate conceding.

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