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An infected president, a tilted economic stimulus package: the month before the presidential election is turbulent. Investors shouldn’t be overly impressed by political jokes and should focus on planning their portfolio after Election Day.
A Joe Biden supporter waits in Las Vegas for the presidential candidate’s convoy of vehicles.
Political opponents may have expected Donald Trump to withdraw from everyday political affairs for some time after his Covid 19 infection. They have been best taught this week. Just one day after Trump left Walter Reed Military Hospital, on Tuesday he surprisingly broke months of negotiations between Republicans and Democrats over a comprehensive stimulus package worth billions of euros.
Instead, Trump called for aid packages for individual industries and areas. This makes a pre-election deal increasingly unlikely: Democrats insist on a global package. News of Trump’s surprise move sent major US stock indices such as the high-tech S&P 500 and Nasdaq 100 plummeting on Tuesday.
Market participants’ concerns are well founded: A second Corona aid package after the first in spring is seen as essential to get the economy back on track to growth. The economic recovery slowed considerably in the fall, and unemployment rates remain double what they were before the pandemic. However, the US stock market crash was short-lived and prices rose again on Wednesday. Overall, the fiscal policy boost is expected to come no later than after the election, regardless of which party the president has, the majority in the House of Representatives, and the Senate.
Investors shouldn’t be overly impressed by the political skirmishes that led to the presidential election. They are more likely to ask how they should line up their portfolio after Election Day. It is not just who will sit in the Oval Office in the future that counts, but especially the makeup of the United States Congress. Adrien Pichoud, chief economist at Syz private bank, describes four possible scenarios in an interview.
Scenario 1: Joe Biden wins the presidential election, Democrats have a majority in the Senate and House of Representatives.
A victory in the presidential election, combined with a majority in the House and Senate, would be Joe Biden’s dream scenario (pictured during a performance in Arizona).
A complete defeat for the Republicans would be linked to the biggest economic shock. “This scenario produces big winners, but also big losers,” says Pichoud. The beneficiaries of a possible Biden victory would include companies in the infrastructure and renewable energy sector, as well as shares of companies in the Asian region that expect a decrease in the trade conflict between the United States and China. The losers were mainly oil companies and other companies in the fossil fuel sector. The pharmaceutical industry also has to adapt to greater price intervention under the Biden government. Regulatory pressure is likely to increase in the financial sector. The increase in corporate taxes from the current 21% to 28% is likely to have a noticeable impact on corporate profits.
Scenario 2: Trump is elected, Republicans win not only the Senate but also the House of Representatives
US President Donald Trump is leaving Air Force One. The incumbent’s poll numbers haven’t been very positive from a Republican point of view for a long time.
From today’s perspective, Republicans are unlikely to get through. However, if it does, the industries favored by the Trump administration so far will continue to benefit from the course of deregulation, this includes the areas of fossil fuels and finance. There is a positive overlap with the Democrats in the infrastructure sector, where the Republicans have also announced significant investments. Investors should be wary of stocks in export-oriented European companies that are likely to be strained in business relationships. For the same reason, agriculture-related businesses are more likely to have difficulties.
Scenario 3: Biden becomes president, Congress remains divided
A Joe Biden victory and a divided Congress are believed to be the most likely scenario before the US election.
From today’s perspective, a divided Congress with Joe Biden in the White House is probably the most realistic scenario. However, if Republicans retain a majority in the Senate, it will be difficult for Democrats to stick with their $ 7 trillion spending plans. $ to be fully implemented. “It would basically continue as it had for the last four years. It would be unlikely that structural changes would take place, the congress would only include absolutely necessary expenses ”, says Pichoud. Asian stocks, infrastructure and renewable energy companies would remain attractive. Shares of big tech companies would also retain their current appeal, as stricter regulation is less likely in a divided Congress. Since it is still possible to intervene in drug prices, the pharmaceutical industry is also seen as a loser in this scenario.
Scenario 4: Trump is re-elected, Republicans keep the Senate, Democrats keep the House of Representatives
The status quo is also considered a possible scenario. Pictured is the Washington Capitol in May 2020.
This scenario largely corresponds to the status quo. US stocks remain attractive in a global comparison.
Due to the record level of low interest rates, Pichoud is positive for equity markets in the next six to twelve months, regardless of the outcome of the elections in the US For investors, there is currently no other option than stocks to generate significant positive returns. However, he advises against investing blindly in the entire market. “Stock indices will continue to rise, but depending on the outcome of the elections, they may be driven by other industries.”
