It is impossible to avoid news about the US election at the moment. Wherever you live and whatever your nationality, I’m sure you have at least some understanding of the ongoing tussle between Republican President Donald Trump and his Democratic challenger, former Vice President Joe Biden leading up to the showdown on November 3rd.
Regardless of your political persuasion or personal view of the candidates, as an investor, you should be aware that the battle for the White House and the eventual victor could have a significant impact on your portfolio. However, as much as the campaigns and the news media talk about economic policy and stock markets, they often speak in abstracts and it can be difficult to find out what the implications might be for your own financial plans. With that in mind, here’s a brief outline of what the effects of the US election could be to everyday savers and investors, whether you are US-connected or not.
1. Result or Recounts?
The biggest fear for the political parties is also the clearest threat for investors. Markets love stability and predictability, and nothing says instability like the world’s largest economy not knowing who is really in charge. Whether the winner is blue or red, a clear winner will be far better for your portfolio than a protracted legal battle over votes or, worse still, an unruly transition. Anything more than a couple of weeks of wrangling or dispute after election day could mean increased volatility and a rush to safe havens including currencies, gold and, as we have seen in recent times, mainstream cryptocurrencies like Bitcoin.
2. Tariffs or Trade?
During his first term, President Trump has introduced wide-ranging tariffs on products from carrot juice to car parts being produced worldwide from China to Canada. These tariffs sparked retaliation from the countries affected. These tariffs have negatively affected international trade and competition through brand diversity, whilst increasing prices for consumers of affected goods. Another four years would likely mean a continuation or even escalation of this policy. Meanwhile, a Biden presidency could signal an end to many of the tariffs, leading to a boom in global import/export business. If your portfolio includes internationally focused companies like the automotive or consumer goods giants, emerging market manufacturing or agriculture-related assets then an end to these tariffs could be a bonus for you.
3. Gasoline or Going Green?
Whilst the Biden campaign has promised a transition away from fossil fuels and high-carbon industries, the Trump campaign vows to preserve oil, gas and coal in the US. Both of these approaches will of course benefit certain parts of your portfolio and harm others, but not necessarily in the ways you would expect. The fact is that the biggest companies in the world that traditionally built their success on digging or drilling are now some of the biggest investors in and producers of renewable energy and could benefit significantly from a US-focus on green initiatives. The converse to this is that investors might not appreciate this fact and so in the short term, stocks that are seen as ‘dirty’ might suffer due to perceptions as investors shy away from names associated with carbon-intensive industries. Furthermore, countries such as China that have invested heavily in renewables could potentially be boosted by more green consumption and regulation in the US, but may over time lose the competitive advantage gained from their early moves as US giants push more money towards climate-friendly tech and processes.
The US is still by far the biggest energy consumer in the world so either candidate’s approach will have implications for the industry, but it’s hard to see a situation where the biggest ‘diggers and drillers’ don’t benefit in the long term.
4. Taxes Up or Down?
The Trump tax and regulation cuts have undoubtedly been good for high-earners and big businesses, while Biden has promised new taxes on those same groups. While these taxes might not affect you personally, they could certainly reflect in your investments. Increased tax on corporations can reduce profit margins, earnings and thus the stock performance of US companies in your portfolio or global companies with significant US-based revenue. Biden’s planned tax reform could be good for the average Joe (no pun intended) in the US but might prove bad for their non-resident or expat counterpart.
5. Pandemic Planning
Whilst the Biden camp has pledged to work on unified national strategy to slow or combat the novel coronavirus, the Trump administration has piled all of its bets on the search for a vaccine and develop more effective treatments for Covid-19. These two approaches could have wildly differing outcomes for investors worldwide as the pandemic progresses. Lockdowns and business restrictions could of course lead to difficulties for families and companies living in or trading and investing in the US, but may also hurt imports and exports around the world. Counter to this, an unchecked spread of the virus could devastate the economy and leave the US quarantined from the rest of the world. Either way, if a vaccine or highly effective treatment is developed and released, we can expect rocket-ship performance of certain areas of the healthcare and biotech industry, along with a boost to most markets in general. In the meantime, the more people are staying at home and working online, the longer the recent trend of growth in online activity, communications tech and remote-working firms could continue.
To summarise, we can’t predict who will win the election, and both candidates have pros and cons for investors around the world, but understanding the issues involved and limiting your exposure to potential risks is vital to protecting your financial goals.
Ultimately, the short-term effects could well prove of little significance to longer-term investors and we may be having similar conversations in four years’ time. Staying focused on your goals can help alleviate some of the worries and uncertainties that political instability can bring about. If you would like to discuss how this and other current events around the world might impact your own investments and financial targets. Reach out to us today and we will be happy to help.