It is difficult to believe that it has already been four years since Donald J Trump was elected as President of the United States. Joe Biden, Obama’s Vice President, is the Democratic nominee and Donald Trump is the incumbent nominee for the Republicans.
Whilst the polls are currently indicating a Biden win, it is important to note that there are many quiet Trump supporters who are not so vocal in their support. The polls have therefore become increasingly less reliable over the elections. Similarly, Hillary Clinton was the bookies favourite and won many more votes but the system went against her.
The two nominees have different views on many matters, however the following affairs are expected to affect investors:
It is anticipated that COVID-19 will dominate the remainder of the campaign.
Soon after Trump came into power in 2016, he cut Corporation Tax (CT) from 35% to 21% and he has promised to keep CT rates low if he is re-elected. Biden on the other hand, plans to increase the CT rate to 28%. Although this is higher than Trump’s rate of 21%, it is still much lower than it was back in 2017.
If Biden is elected and delivers his plans on increasing corporation tax, the implementation should be thoroughly considered as timing is extremely vital. By making CT changes too soon, it could trigger further damage to the already fragile and severely affected economy, caused by COVID-19. However, over the longer-term higher taxes will be needed to repay the current debt.
Ever since Trump became president he has taken a strong stance against China, by putting tariffs on goods that have been imported from there. In August, Trump announced that the American government will give tax credits to those firms who will move their production line out of China. Biden is also a protectionist and it seems he will also be tough on China, although perhaps with more diplomacy.
This means that the tensions between US and China are likely to continue regardless of the election results. Other nations and economic areas, such as the European Union, could benefit from the US-China dispute, since both nations will look for alternative partners with whom to work.
The Technology sector has introduced many advances, especially with an increased home-based workforce. Tech stocks, especially FAANGs (Facebook, Amazon, Apple, Netflix, Google) has been US’ strength for many years. In fact, much of the return made from investing in the US in recent years has been due to a small selection of stocks including these.
Whilst both candidates are planning to use the power of the presidency to pass legislation aimed at increasing competition, taxation and the protection of consumer privacy, they need to tread carefully or risk cutting off the engine of the economic growth drivers.
Historically, markets have reacted more positively to a Republican president being elected. They are deemed to be more market friendly. However, that being said, it is worth remembering that the impact of any President on the US economy and the stock market depends on their ability to control both the Senate and the House of Representatives. Without full control, it remains difficult to pass any legislation without significant compromise.
The race is too close to call at the moment, but the chance of either candidate winning both the election and controlling the Senate is very slim. Investors like balance, so maybe having a balance may not be a bad thing.
Trump is unlikely to ‘go quietly’ and he has threatened challenging the result if not in his favour, particularly the larger postal vote. It may well be that we will not know the outcome on election night, leading to uncertainty that the markets will not like.
Whilst the US election is usually an important event that affects investors, the discovery of a COVID-19 vaccine is perhaps stealing the show. The impact of a vaccine discovery on the global economy will be undeniable and it would result in a significant boost to the stock markets all over the world. Without a vaccine or some other cure for COVID-19 suggests any positive outcome of any political event such as the US election or Brexit, is likely to be dampened.
It is safe to say that the US election, Brexit and COVID-19 will dominate the markets in the short term but what will be next? It’s possible that the markets will then focus on other key issues such as the future of the European Union, the continued rise and power of China and the global economic recovery of COVID-19. There are always various factors affecting the markets and volatility is not necessarily a bad thing. Investing is never without risk and you should be rewarded for the level of risk you take, bearing in mind your ‘capacity for loss’.
At LFWM we are happy to discuss investment matters with you and advise on appropriate solutions based on your personal situation and goals. Feel free to get in touch with our Director, Andrew Tricker (firstname.lastname@example.org) or our Chartered Financial Planner, Görkem Gökyiğit (email@example.com).