The 2020 Elections and the Stock Market: 5 Scenarios to ConsiderSubmitted by Reby Advisors | Certified Financial Planners | Danbury, CT on October 15th, 2020
From the Fall 2020 Newsletter, October 15, 2020
Every four years, the political class reminds us: This is the most important Presidential Election of our lifetime.
The statement, of course, is logically untenable; all elections cannot be the most important in our lifetime.
Yet elections do have consequences – for our taxes, economic performance, and government programs. So, how will the 2020 elections impact our money? Société Générale S.A (SocGen), a multinational investment bank, recently analyzed how five possible election outcomes may affect investors.
Here’s a summary of their conclusions:
1. The Democrats Sweep.
With control of the White House, Senate, and House of Representatives, the Democrats have the power to bypass nearly any Republican opposition for at least two years. If this scenario unfolds, expect tax increases and at least $1.3 trillion in additional government spending through 2022 – on healthcare, green energy, transportation, and telecommunications. The Biden foreign policy will focus on international cooperation.
SocGen projects the economic impact of these policies:
- Reduced GDP growth through 2022
- Lower gains in The S&P 500 Index
- Lower returns in most major international stock indices
- Lower oil prices due to improved U.S.-Iran relations
- Free college tuition for families earning less than $125k
2. Biden Wins, and Congress Remains Divided.
SocGen projects modestly better economic and stock market performance during a Biden administration if Republicans control the Senate. Moreover, Biden will set foreign policy and leverage executive authority to increase domestic government spending. However, Senate Republicans will likely block major Democratic legislation.
3. The Status Quo Prevails.
The Trump-Pelosi-McConnell triumvirate remains in place, creating better domestic stock market performance and economic growth than any other division of power, according to SocGen. The investment bank forecasts the Large-Cap Value and Mid-Cap Value asset classes to perform the best through 2022 if the status quo remains intact.
4. Trump Wins, and Democrats Take the Senate.
The Democratic Party gains control of the Legislative Branch, but President Trump has veto power over new laws and budgets. Trump will continue his America-first foreign policy, veto any tax increases, and likely concede to increased spending on infrastructure. If Democrats indeed win the Senate, SocGen anticipates domestic stocks and most international indices to perform better with Trump in the White House than Biden.
5. Republicans Sweep.
This scenario is highly improbable but would likely result in new tax cuts and a continued hardline foreign policy.
Expect Volatility After a Contested Election
Historically, the stock market has been volatile leading up to Presidential elections. Moreover, the two previous contested elections – 1876 and 2000 – created market corrections. If market prices fluctuate due to election uncertainty, that’s to be expected, as is an eventual rebound.
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