A mix of US and foreign wealth management houses consider how markets and specific sectors will be affected by the trends in politics, coming as the parties hold their conventions amid countdown to November.

The Democrats concluded their pre-election convention this week and officially nominated Joe Biden as their presidential candidate, with Kamala Harris in the running mate spot. At the end of what has been a fairly busy week for financial news (the month of August is not quite as sleepy as can be the case), we take a look at what economists and strategists think of the race for the White House so far. In some ways the election involves a choice of two contrasting personalities, although it is worth reminding ourselves that both candidates are in their 70s. Even on issues such as trade with China, it is not clear that a Biden presidency, were it to be elected, would involve a drastic return to unfettered free trade. Unfashionable though it may be to point this out in such times, there are more points in common than is always appreciated. (Donald Trump is hardly a conventional conservative either – look at how the budget deficit and debt has continued to rise on his watch.) 

Where there are likely to be considerable differences are over energy policy, taxation of the wealthy – a big concern to FWR readers – relations with Europe and possibly the Middle East, issues around education, and spending on specific projects. 

In the weeks to come we intend to track these issues where they are relevant to wealth managers and their clients, and FWR promises to keep the focus tight, given how weary one suspects people are with politics, not just in the US. Email the editors at tom.burroughes@wealthbriefing.com

Eaton Vance
The wealth management firm’s Investing Pulse Survey, polling 1,000 Americans in August, found that the health of the economy is the most important issue in the upcoming  election, followed by the response on the COVID-19 pandemic. Some 75 per cent think the US presidential elections will drive markets higher regardless of the outcome. When asked about a specific candidate’s effect on the markets, respondents are unclear. 51 per cent said markets will react positively to a Biden win and 52 per cent state markets would also react positively to a Trump re-election.
Eddie Perkin, chief equity investment officer: “The dominant driver of markets continues to be COVID-19. Recently, however, investors have begun to focus on the November elections. As I have argued before, successful investing is not about predicting the future with pinpoint accuracy. Rather, it is about contemplating a range of scenarios and their likelihood, then comparing those probabilities to market prices to infer what is priced in.

“In the case of the upcoming election, I am inclined to believe that although Biden is the clear favorite, the consensus is overconfident in his chances. Industry groups presumed to be hurt by a Biden victory are reaching levels that offer attractive risk/reward opportunities for those willing to lean in. These include banks, managed care, defense, and utilities.”

Mark Dowding, Chief Investment Officer at BlueBay Asset Management
“For now, the Democrats continue to enjoy a healthy lead over the Republicans, but in recent days there is a sense that this lead could be narrowing - particularly in the race for the Senate. Consequently, the odds on a ‘blue wave’, with the Democrats getting the clean sweep with respect to the President, Senate and the House, appear to have lengthened. This remains the base case assessment for the time being, however, a lot can happen in a couple of months and there is a fear in Democrat circles that Biden could bleed support every time he opens his mouth.” 

“Meanwhile, Republican strategists appear to have concluded that there is little they can do to enhance Trump’s 40 per cent approval rating and therefore are seeking to attack Biden, hoping to drag his ratings to a similarly low level.” 

“A tacit desire to limit voter turnout, by making postal voting more difficult to expedite and by allowing lengthy wait times at polling stations to discourage non-politically engaged voters, may also be tactics which could yet play into Trump’s hands on election day. Arguably, it was low turnout in some swing states that saw Hilary fail in her bid for the White House.”

“This time around it may seem that US voters are once again asked to choose between two candidates they have little love for. The election is not having too much of a bearing on financial markets for the time being. However, this may well change as we move into the fall and the political temperature rises.”

Sean Markowicz, strategist, research and analytics, Schroders
“Looking ahead, previous one-time boosts to US earnings such as corporate tax cuts are unlikely to reoccur. In fact, we may even see this policy reversed if Joe Biden, the Democratic presidential nominee, gets elected to office in November. Without this underlying earnings tailwind, US equity valuations are vulnerable to a correction.”

Matthew Cady, investment strategist, Brooks Macdonald
“Markets have spent the last few weeks hoping for Congress to come together to agree an additional fiscal stimulus plan, but with the Democratic and Republican national conventions running back to back, a deal done before September now looks less likely. Instead, we would expect US politics to dominate market risk appetite, with Presidential elections in just seventy-eight days’ time. With Biden leading Trump in the polls, investors are taking a much greater interest in his policies, and this week’s Democratic convention will give markets another opportunity to look under the bonnet, as Biden seeks to sell his platform to both his party and the country.”