By Daniel Tortis
Every four years there comes a time the attention of the entire world turns to the United States in order to see who will become the next president. The election impacts not only America, but has many ramifications that are felt worldwide. Given that America is Canada’s biggest trade partner and that we share so many economic ties with our ally south of the border, it is only logical that there will be an impact on the markets of both countries.
A recent survey by CNBC said that 93% of Americans believe that the US election will affect the stock market and 84 % of people say that it will lead to changes in their portfolio. Knowing this, there are some theories as to how each candidate’s victory will likely impact the market.
If Joe Biden and the Democrats are victorious it could result in a 2 – 4 percent market sell off in the short term due the proposed tax hikes he will put in place. Biden’s stance on moving America towards clean energy and net zero emissions by 2050 could also allow for stock prices in the clean energy industry to realize large short term gains. He is expected to take a more traditional approach to US-China relations: meaning less tariffs placed on Chinese goods and more trade. If Biden takes office, taxes will increase and government spending will also definitely increase. Infrastructure stocks could see big gains as Biden has a spending package in place to build out, “a modern, sustainable infrastructure and an equitable clean energy future.” Big government contracts in both the renewable energy and infrastructure sectors will experience increased demand and leading to greater profits.
If Donald Trump is elected to a second term, energy companies could see a positive stock gain with Republican policies continuing a reliance on fossil fuels especially since Trump withdrew from the Paris accord. If Congress is split, a status quo situation could result. The markets typically rally when not much can get done and leadership remains consistent. If re-elected, Trump would likely continue to push his anti-China stance. Given that China is one of the world’s largest economies, this will be felt by many sectors including technology, which outsources many of its business operations overseas.
Typically, trends over the long run have started to emerge after elections. It usually doesn’t seem to make much difference which political party takes office, but it does matter whether control of the White House changes hands. The market likes consistency. If a new party takes power then stock markets gains are usually around 5 % over the first year. However if the same party retains control of the White House returns are usually 6.5 %, a higher rate of return.
As potential investors, there are many asset classes and currencies that could see big gains or losses depending upon the result of the election. This could lead to many opportunities for investors who do their research. However with presidential elections, one would need to make sure to have all the components of a diversified portfolio in place, and then stick to a longer-term strategy that is designed for more than one election cycle. The year 2020 has been an extraordinary year due to COVID-19, and the possibility that the US and global markets could have a new twist come November only adds to this climate of uncertainty.
Photo by Jonathan Simcoe, Unsplash