We have less than three weeks to go before the Presidential election. So it’s time to start thinking about what effects, if any, it will have on the investment climate.
No matter who wins, there is little reason for economic optimism over the short term.
The lack of a coordinated Federal response to the coronavirus pandemic has left the United States with one of the world’s highest death rates.
According to data from John Hopkins University, the U.S. has the 12th-worst death rate at 2.8% per 100,000 people. While there are a few European countries worse, most of the other countries on this list are from the developing world.
History tells us that, just like in the 1918-1920 pandemic, the economy cannot get going until neither people nor businesses fear that a possibly deadly disease lurks around every corner.
A few select growth stocks, such as the five largest tech stocks in the U.S.—Alphabet, Amazon, Apple, Facebook, and Microsoft—have continued to outperform the markets; however, most other stocks are flagging. This suggests investors do not see a broad economic recovery in the short term.
But what about the longer term, after the election?
Let’s take a look at what a Trump portfolio and Biden portfolio would look like.
If President Trump Wins
A Trump victory would almost certainly mean a global trade war hotter than ever.
For example, many companies have their operations out of China to Vietnam. Good, right?
Nope. The Trump Administration already has major tariffs ready to go on Vietnam in early 2021.
This increasing trade friction and escalating commercial conflicts with other countries will put pressure on the already-burdened U.S. dollar thanks to sky-high government debt, all-time high corporate debt, and rock-bottom interest rates.
With the U.S. net saving rate deeply negative, a weak dollar has ominous implications for America’s future. The U.S. will be, in effect, liquidating the net saving required for the expansion of productive capacity. Without borrowing surplus savings from abroad, growth becomes impossible.
And will foreigners invest when the dollar is sinking and the President is imposing restrictions on their businesses? Not likely.
With that said, there are still some economic positives to a Trump victory: It will be more of the same, so large companies will enjoy more tax cuts, for instance. Plus, the Trump Administration will continue to favor defense firms as well as fossil-fuel companies, and large Wall Street investment banks will continue to enjoy the lowering of regulations and the flood of liquidity from the Fed.
But what if former Vice President Biden wins the election?
If Former Vice President Biden Wins
If the Democrats win the Presidency and both houses of Congress, the tech behemoths had better watch out.
This past week, Democratic lawmakers in the House released a 449-page report after an exhaustive 16-month investigation. The report focused on the “pressing need for legislative action and reform” to rein in the monopoly power the House Judiciary Subcommittee said was being enjoyed by Apple, Amazon, Facebook, and Google, suggesting “structural separation” as a main solution to this problem.
But don’t shed a tear for Big Tech. Instead, look at the larger picture.
David Bailin, chief investment officer at Citi Wealth Management, points out that, historically, markets have done better under Democrats. He told the Financial Times, “Democrats have tended to take over in times of problems needing to get resolved. In general, markets tend to do better than people expect, especially under Democrats, for the past 52 years.”
And if Biden is victorious, I think there will be some obvious stock winners. Favored sectors will include green energy, electric vehicles, infrastructure, and large multinationals.
I would expect a strong green energy push under Biden. Many of these stocks have already jumped higher the past few months. For example, the iShares Global Clean Energy ETF (ICLN) is up 57% in just the past three months! Logically, this means any company related to wind and solar power look good. The same goes for energy storage and batteries for electric vehicles.
I also expect our country’s infrastructure problem to finally be addressed; any firm in that sector will do well under a Biden presidency—even small companies such as Great Lakes Dredge (GLDD).
And, although trade tensions may continue, I would also expect the tariff wars to end. Nevertheless, our large multinationals will benefit. They will no longer have to fear about being shut out of major markets including China and Europe.
Finally, no matter who wins, I expect gold to continue on its upward trajectory. There is just too much debt out there for gold to go into any sort of extended decline.