U.S. Election: The Changing Guard

After a highly contested election complicated by civil unrest and a heated campaign, the American people have decided on a change in leadership. As a Canadian, you may be wondering what impact this change may have on your investments.

We can observe that regardless of the political party that occupies the White House, there is no distinct pattern or outcome for the equity markets. In fact, respected author and investor Ben Carlson wrote in a recent Fortune magazine article that politicians often have less of an impact on equity market performance than most people would like to believe. Carlson has shown that the long-term trend of the stock market has been up no matter who the president is.1 It should also be noted that no president in modern history has been able to prevent the stock market from experiencing a large drawdown, either.

What We Know: Biden’s Policies, In Short

Throughout the campaign process, much focus was given to Biden’s pledge to increase taxes for corporations and higher-income individuals, reversing some of the tax cuts enacted by the Trump administration. These increases have been proposed to help fund trillions of dollars in stimulus measures, social services, manufacturing, green tech and infrastructure projects. A new fiscal stimulus plan has been called “crucial” and was largely stalled by the election.

Biden has supported a clean energy agenda, which has concerned many in the oil and gas sector. He has also supported greater regulation of the communications sector, and his proposed tax regime would likely affect the banking sector. From a global policy perspective, it is expected that the Democrats will deal with trade policy more diplomatically, which may help temper escalating global trade tensions over the past four years.

The Bottom Line

Basing an investment strategy on the outcome of an election is not a prudent exercise. Nobody can be certain that campaign promises will lead to policy changes or even impact future economic outcomes once Biden takes office on January 20, 2021. For example, Trump’s 2016 promises of deregulation suggested that the energy sector would have fared well during his time in office; in hindsight, many other factors negatively impacted the sector. Regardless of what lies ahead, the private sector will continue to produce jobs, invest in innovation and drive growth over the longer term. Often, the winners will be those companies that can best position themselves to adapt to changes in the competitive and regulatory landscape over time.

As advisors, we structure portfolios using diversification to prepare for inevitable changes and ensure that we are not exposed to any single adverse event. We make course adjustments when required and are constantly monitoring investments given that operating landscapes and competitive conditions are always changing. What we shouldn’t lose sight of is that the long-term trend of the stock market has been up, regardless of who is in power.

Growth of a Dollar Invested in the S&P 500: Jan. 1926 to Dec. 2019

* At the time of writing;
1 https://fortune.com/2020/10/10/2020-election-investing-trump-biden-stock-market-predictions/

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