It’s Time Investors Start Paying More Attention to the U.S. Election

by Kevin McCreadie, AGF Management Ltd.

Insights and Market Perspectives

Author: Kevin McCreadie

July 22, 2020

The 2020 race for the White House and control of the U.S. Congress took a back seat to the pandemic during the first half of the year, but the potential market implications of the election are significant and can no longer be ignored. AGF’s CEO and Chief Investment Officer explains what’s at stake.

The U.S. election was flagged by many investors as the event to watch heading into 2020, but then COVID-19 hit and everything changed. Will the race be more of a focus in the second half of the year?

Markets haven’t paid too much attention to the race up until now because the pandemic and economic crisis that resulted from it have been all-consuming for the good part of the past five months. Recently, President Trump’s handling of the crisis and his recent refusal to acknowledge the latest surge in the virus have landed poorly with most voters. The election will now bear more scrutiny from investors as we move through the summer. In fact, we’re already starting to see that happen. For instance, headlines that Elizabeth Warren might be the top choice to become Treasury Secretary if Joe Biden wins the presidency caused a stir recently because markets generally believe such an appointment would lead to more stringent banking regulations. Likewise, Biden’s running mate choice may also generate a reaction from markets when it’s announced in the next few weeks—especially if his vice-presidential nominee ends up being someone to the far left of the political spectrum. Then, there’s Trump’s electioneering to consider. He’s bound to ratchet up the rhetoric given that he currently trails in the polls. And what if speculation about him wanting to throw in the towel proves persistent? Markets would surely begin to react if forced to seriously contemplate Mike Pence or some other Republican as the party’s official nominee for President. So, there’s no shortage of election-related storylines to watch for in the coming weeks and that may even extend beyond November given the very real possibility that election results end up being disputed by the losing party.    

As you mentioned, the Democrats now lead in the polls. What are some of the potential market implications if this lead holds up on election day?

The market may be less concerned about which party wins the election and more worried about how resounding the victory ends up being. A sweep of the White House and both chambers of Congress would be the worst-case scenario because it would negate an important check and balance and open the door to some of the more clear-cut partisan ideas that each party espouses being passed into law. To that end, a Democratic sweep raises the spectre of higher taxes, which many investors would not view kindly. After all, by some estimates, the corporate tax cuts introduced by the current administration added somewhere between 16 and 20 dollars of earnings to the S&P 500 and rolling back even half of that would automatically push the market multiple higher. There’s also the impact that Democratic initiatives like Medicare For All and the Green New Deal might have on certain sectors of the markets. Healthcare stocks would be negatively impacted by the former, more than likely, while the effect of the latter on energy stocks might be more mixed, with fossil fuel names taking a hit and shares in renewable energy companies benefiting.

What happens if the Republicans rebound from recent polling woes and come out on top in November?

A Republican sweep doesn’t seem likely at this stage in the race, but it’s way too early to count out President Trump’s chances for re-election. If that happens, and the Republicans also maintain the Senate, the status quo would likely comfort investors worried about some of the Democratic policies already mentioned, but not sit so well with others less keen about the prospect of dealing with another four years of the President’s cutthroat trade protectionism. The market also needs to weigh the impact this outcome could have on the health and social well-being of the U.S. population at large. The country has arguably never been so divided and the unrest that has erupted over the past few months threatens to become a major economic headwind if it is not properly addressed by either party in a significant way. Needless to say, there’s a considerable amount at stake as we draw closer to the election and investors can no longer ignore all of the possible ramifications.

Kevin McCreadie is Chief Executive Officer and Chief Investment Officer at AGF Management Ltd. He is a regular contributor to AGF Perspectives.

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The commentaries contained herein are provided as a general source of information based on information available as of July 13, 2020 and should not be considered as investment advice or an offer or solicitations to buy and/or sell securities. Every effort has been made to ensure accuracy in these commentaries at the time of publication, however, accuracy cannot be guaranteed. Investors are expected to obtain professional investment advice.

The views expressed in this blog are those of the author and do not necessarily represent the opinions of AGF, its subsidiaries or any of its affiliated companies, funds or investment strategies.

AGF Investments is a group of wholly owned subsidiaries of AGF and includes AGF Investments Inc., AGF Investments America Inc., AGF Investments LLC, AGF Asset Management (Asia) Limited and AGF International Advisors Company Limited. The term AGF Investments may refer to one or more of the direct or indirect subsidiaries of AGF or to all of them jointly. This term is used for convenience and does not precisely describe any of the separate companies, each of which manages its own affairs.

™ The ‘AGF’ logo is a trademark of AGF Management Limited and used under licence.

About AGF Management Limited

Founded in 1957, AGF Management Limited (AGF) is an independent and globally diverse asset management firm. AGF brings a disciplined approach to delivering excellence in investment management through its fundamental, quantitative, alternative and high-net-worth businesses focused on providing an exceptional client experience. AGF’s suite of investment solutions extends globally to a wide range of clients, from financial advisors and individual investors to institutional investors including pension plans, corporate plans, sovereign wealth funds and endowments and foundations.

For further information, please visit AGF.com.

© 2020 AGF Management Limited. All rights reserved.

This post was first published at the AGF Perspectives Blog.

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