While we wait for the final outcome of the election, we would stress the following observations with clients.
First, we reiterate our stance that investors should stay the course, regardless of the final outcome. While market volatility could persist until a clear winner is determined, we remain optimistic on the outlook for the economy and risk assets.
The economy has been improving ever since the severe lockdowns ended. This is evidenced by the third quarter’s record 33% growth surge after the historic collapse of the second quarter. Key economic indicators suggest the economy continues to heal, despite delays in the follow-on stimulus package. This rebound in economic activity is leading to a rebound in corporate profits that ultimately support stock prices.
Regardless of the election’s final outcome, we expect the follow-on stimulus package to ultimately get approved that will provide needed support for sectors of the economy hurt most by the pandemic. The American public, both Democrats and Republicans, favor a follow-on coronavirus stimulus package by a fairly wide margin.
With the election results we currently have, a large Biden victory won’t occur that would embolden Democrats to implement a comprehensive version of Biden’s policy platform. This suggests the follow-on stimulus package will probably be smaller than the $2.2 trillion package that was passed by the House of Representatives in October. However, the Republican-controlled Senate recently passed a $500 billion package, so sizeable stimulus should still be enacted in the coming months.
The lack of a large Democratic clean sweep also suggests Biden’s proposed tax increases, major climate change initiatives, and further health care reform would be harder to implement, even if Democrats gain control of the Senate. Trade tensions are likely to be lower under Biden, regardless of who controls the Senate.
A Trump victory would represent a continuation of his low tax and low regulation policies. Protectionist trade policies and the confrontational policy toward China would most likely continue. Trump already proposed a $1.8 trillion follow-on coronavirus stimulus package so a sizeable stimulus package seems likely if he remains in office.
Stay tuned for additional commentary as the final results become clear. In the meantime, we recommend investors stay the course with their long-term investment plan and avoid focusing on any near-term market uncertainties caused by this year’s presidential election.
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