US Election implications for stocks

Americans will go to the polls on Tuesday, November 3rd to elect a President for the next 4 years. Joe Biden and the Democrats lead President Donald Trump and the Republicans in the polls. But as we learned in 2016, the polls don’t always get it right and sometimes we get unexpected outcomes.

With that in mind, we take a look at the possible election outcomes and what it could mean for US Stocks. Markets are a few percentage points off all-time highs so are not fearful at present and we suspect in most scenarios, buyers will jump into stocks once the outcome is known.

It looks like a Democratic win in both the house and the senate is the most likely outcome. In this case, you can almost guarantee Biden’s $2trillion stimulus plan will be approved early in 2021. The market loves stimulus and a Democratic sweep will likely see an immediate 5% jump.

Stocks most likely to gain are those on the value side of the equation. The big tech names that have led this rally might come under pressure from rising corporate taxes and anti-monopoly regulations.

At the opposite end of the spectrum is a red Republican sweep. Unlikely. But anything is possible. Here we are likely to get less stimulus but taxes will remain low, more fights with China protecting US assets – basically a continuation of the same we have seen for the last 4 years and the same stocks will continue to lead. Think big tech names.

In the middle is one party in the house and another in the senate. This puts the economy on hold for 4 years as no major initiatives will get approved. Stocks are likely to flounder for a while until stimulus is agreed. But this scenario is similar to what we have now. There will be no major changes coming and hence no major uncertainty. Stocks should like this and the bull market should continue.

The last scenario is where we get no clear winner on the day and the counting goes on for weeks or months. Stocks will not like this at all and this is the most bearish scenario. But there will be a result at some point so any selling will be temporary.

Whoever wins will inherit an economy with somewhere between 8% and 9% unemployment. Their number one mandate will be to get those people back to work. For there is one thing you can count on from a Politian and that is to protect their own jobs by creating jobs for their voters.

Ultimately, stimulus is coming regardless, and the once the election is over, the uncertainty will be removed. Stocks should rally into the end of the year and we will be buying should we see any short term selling here.