US election 2020

Given the events of 2020 so far, investors could be forgiven for putting the US election at the back of their minds. But with Election Day fast approaching, it’s beginning to draw more attention. This week, we take a look at what you need to know for the upcoming US election, and how investors should think about political events like these.

What are the key dates to look out for?

In August, both parties officially announce their candidates though it’s all but guaranteed to be President Trump for the Republicans and Joe Biden for the Democrats. The Democrats’ candidate for Vice President will be announced shortly (expected to be this week), and the Biden campaign has previewed a list of female candidates being vetting that include Senators Kamala Harris (CA), Elizabeth Warren (MA), Tammy Duckworth (IL), and Tammy Baldwin (WI), as well as Representatives Val Demings (FL) and Karen Bass (CA), among other candidates, such as former national security advisor Susan Rice and other governors and mayors.

There currently are three presidential debates throughout September and October before the election on November 3rd, and the inauguration will take place on January 20th 2021.

What are the polls currently saying?

National polls currently show Biden as having an advantage over President Trump at this time[1]. Some have suggested that the former Vice President gained momentum as the protests developed across America, and as voter sentiments on the coronavirus have evolved[2]. Both factors could be contributing to the current gap in the polls.

There are a couple of things to remember when it comes to polling though.

First, nothing is a given. The polls mentioned above simply provide a snapshot of the relative advantage of each candidate assuming the elections are held today. There are still several months between now and the election, and many things can happen in that time (health or economic news or other unknown developments). Second, there is always uncertainty around polling estimates. Back in 2016, Hillary Clinton was ahead in the polls by a few points right up until the night before the election, and she ultimately lost. That being said, Biden’s lead in the polls is larger than Clinton’s was at this point in the campaign.

This doesn’t mean polls are useless or should be ignored, but we should recognise their limitations. This dynamic, along with potentially unknown developments in the months ahead, make the race too early to call.

But it’s not just the outright winner that’s important, right?

The US Presidential elections will be the main focus come November. The winner of the Presidential election is decided through the Electoral College, which in short means the winner doesn’t necessarily have to get the most votes outright (the so-called ‘popular’ vote) to win. It’s common for the victorious party to win both the popular vote and the Electoral College, but this doesn’t always happen. In 2016, Hillary Clinton won the popular vote but lost the overall election.

Additionally, the President’s ability to enact policies will be directly influenced by which party controls the two arms of US Congress: the House of Representatives and the Senate.

For the House of Representatives (currently controlled by Democrats), all 435 seats are up for grabs (members serve 2-year terms), and each state has a number of seats proportional to its population.

For the Senate (currently controlled by Republicans), each state has 2 seats regardless of its size. Senators serve 6-year terms, but they stagger elections every 2 years. This means approximately one-third of the 100 Senate seats are up for election.

These elections are equally important to keep an eye on. If Congress remains divided between the Democrats and the Republicans (as it is right now), some legislation can be more difficult to pass. The President could therefore look to implement certain policies using executive orders and newly installed personnel at various departments and agencies. The US Senate is solely responsible for considering and confirming executive branch and judicial appointees, however, so Senate control is particularly significant.

What are Biden’s main policies? And how do investors view them?

One of Biden’s policy agendas relates to tax reform (essentially partially revisiting some of the tax cuts enacted in 2017, namely the reduced corporate tax rate), and more fiscal spending in areas such as healthcare and infrastructure, as well as climate and energy[3]. As mentioned earlier, should Biden win in November, the fate of many of his desired and bigger-ticket policies could also depend on control of Congress. For example, a Biden administration would need to work with Congress to enact changes to tax policies and fiscal spending. This may prove difficult in a divided Congress.

Biden’s policies are considered to be more centrist and less left-leaning when compared to what other Democrat Presidential candidates such as Bernie Sanders or Elizabeth Warren had cited during their campaigns.

What if President Trump is re-elected?

President Trump’s legislative agenda for a second term could include a second round of tax cuts, including for individuals and corporations, as well as a possible infrastructure programme. In terms of trade policy, it could be more of the same, with a particular focus on negotiating bi-lateral trade agreements.

Anticipating the effect on markets of a Trump re-election is quite difficult, as there are many other factors to consider, notably the economic impact of the coronavirus.

More broadly, how do US elections influence markets, if at all?

Historically speaking, the President’s ability to influence the stock market, or indeed the economy, is limited. This is partly by design, since Congress provides the checks and balances to the power of the White House.

However, it’s plausible to argue things have been different with President Trump. US-China trade tensions have remained a dominant narrative for the last couple of years. And they still remain today, though are arguably lower in the pecking order of market concerns right now. The tax cuts in 2017 had a large (albeit one-time) impact on corporate profits, which influenced the soaring stock market returns seen the same year. And treasury yields spiked after President Trump unexpectedly won back in November 2016, as markets priced in higher inflation. So, we may see more of a market impact from the US election as it draws closer.

It’s worth remembering that President Trump’s victory was unexpected by many in the media. Therefore, markets hadn’t priced in the likely policies (e.g. tax cuts) that he advocated. If markets already price in the likely winner and there are no upsets this time round, it could be less of an event for markets.

Investment conclusion

Assessing the market implications of the upcoming US election goes beyond correctly guessing who becomes President. There are many other moving parts, for example who gains control of Congress; how likely it is that a President’s policies can be enacted; and the factors that markets are already expecting. And, this year, the US election won’t have the markets’ undivided attention. The US – and rest of the world – is still in the midst of health pandemic, and is recovering from one of the sharpest economic contractions in recent history. The path of that recovery will probably be a larger consideration for markets going forward.

[1] Biden’s Polling Lead Is Big — And Steady – FiveThirtyEight (July 2020).

[2] Big majorities support protests over Floyd killing and say police need to change, poll finds – Washington Post (July 2020)

[3] 2020 US Elections: Framing our Expectations – Barclays Research (July 2020)