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Special Edition: Election 2020

The 2020 election is now in the books (mostly) and many are wondering what it means for the market and their investments portfolios. While the final results are yet to be determined, at this point - 10:30am Wednesday morning - it looks like Joe Biden will be our next president and he'll be working with a Republican-controlled Senate and a Democratic-led House of Representatives. Assuming that scenario holds out, some thoughts:

  • Expect a court challenge from President Trump on the likely Biden victory. He has said he would contest a scenario where is leading on Election night only to eventually be declared the loser. He's also tweeted he feels the election is being "stolen" from him, though no evidence exists for this. While I expect the results of a Biden victory will hold, this may inject near-term uncertainty and volatility into the financial markets.

  • Expect a smaller economic stimulus bill, probably passed in early 2021. This is probably a net negative as a Democratic sweep would have likely led to a much larger spending package.

  • Infrastructure is likely the biggest issue on which a large-scale joint party compromise could be struck in the next two years.

  • The Republicans somewhat surprising hold of the Senate means a few things. First, tax law changes are largely off the table. This means legislation passed in 2016 with the Tax Cuts & Jobs Act like the increased estate tax exemption and the cut to the corporate tax rate will survive for at least a few more years. This should be market-friendly.

  • A Green New Deal is off the table. Solar companies are pulling back sharply today, expect that to continue. Oil & gas names may become more attractive, especially as their dividend yields have grown so large.

  • Similarly healthcare, pharmaceuticals and biotechnology names are likely more attractive.

  • Scrutiny of big technology companies will continue, though I expect it will have less teeth, and be less likely to lead to any large-scale company break-ups.

  • Passage of the SAFE banking act which would have helped cannabis operators is now in doubt. A Democratic sweep would have almost assuredly meant the passage of this legislation. That said, don't consider it completely dead. Arizona, Montana, New Jersey & South Dakota all passed either medicinal and/or recreational marijuana ballot measures. Two of those states also elected a Republican senator. Though difficult, it wouldn't be outrageous to think a Republican Senate finally relents on this.

In short, I'm not expecting much to change for at least two years. With a divided Congress, passage of large scale agenda items for either party will be extremely difficult. I've noted before in these pages before the stock market performs best under a divided government and that's likely what we'll have. That said, despite the market's big gains today, I'm not expecting it to be "up, up and away" from here. With all the focus on the election, I believe media attentiona has been temporarily diverted away from the rapid increase in Covid-19 cases, hospitalizations, and deaths the last few weeks. The situation is worsening and I believe it could be a long winter with restrictions being reimplemented and economic activity slowing again. This also likely means unemployment will remain stubbornly high as employers will be reticent to make new hirings if they feel economic activity is not returning to normal. On the positive side, I believe a vaccine is much nearer and many who may have been reticent to take it under a Trump presidency may be more willing to get a vaccine approved under a Biden-led administration. I believe there is now a light at the end of the tunnel both to the pandemic and the recession, but I suspect it will be a back and forth few months before it becomes more apparent.



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