The 2020 presidential election is still about a year and half away, yet a large number of investors have already made changes to their portfolios based on potential outcomes. Some 40% of investors say they have adjusted their portfolios because of the upcoming election, according to a recent survey. The reality is that investors are worried about a Democratic sweep of the presidency, House, and Senate, which could mean a serious rollback of Trump-era policies, including tax cuts. “If Biden continues to poll this well into the beginning of next year ahead of the primaries, he is gonna start to have some negative effect on the market”, says Tony Roth of Wilmington Trust.
FINSUM: We can’t help but agree with that last assessment. That said, we think negative effects will be slow and steady, not sharp moves.
Michael Cohen, Trump’s former lawyer, is set to hold his first and only public hearing on Thursday, when he will testify in front of the House about his dealings with President Trump. Cohen is reportedly going to directly accuse Trump of criminal activity in addition to testimony regarding “lies, racism, and cheating”. He will not be speaking about Russia matters under the purview of the Mueller investigation. The White House commented that “Sadly, he will go before Congress this week and we can expect more of the same … It’s laughable that anyone would take a convicted liar like Cohen at his word, and pathetic to see him given yet another opportunity to spread his lies”.
FINSUM: This is either going to be a media firestorm or a dud. If Cohen doesn’t say anything new, it will be hard for the media to make much of it.
Next week is going to be a media circus, as the odds of real Trump fireworks look likely to surge. The reason why is that Michael Cohen is going to testify at an open public hearing before the House Oversight Committee next Thursday. The committee, seemingly defending its actions, commented that “Congress has an obligation under the Constitution to conduct independent and robust oversight of the Executive Branch, and this hearing is one step in that process”. The questions Cohen will answer will concern hush money payments, potential Trump conflicts of interest etc, but will not touch on Mueller’s probe into Russian interference.
FINSUM: No matter how you feel about Cohen, or whether you think this is just political theatre, the odds of a media bombshell, true or not, seem high.
One aspect of last week’s midterms that is not being discussed much, but has critical relevance for the wealth management industry is that fact that statehouses across the country swung from red to blue. Democrats won control of several state legislatures and governor seats across the nation. The impact on advisors could be large, as many more states are now much less constrained in their ability to urge for, and issue, their own fiduciary rules.
FINSUM: The massive “blue wave” did not materialize, but the gains were substantial enough that they could create some serious headaches for advisors that are in swing states. Perhaps even more concerning is how the blue House might push for a renewed federal fiduciary rule.
The market had a relief rally right after the election results came in. Yesterday wasn’t so good. The big question on everyone’s mind is where the market is headed from here. Looking historically, the current political arrangement (split Congress, Republican presidency) is the worst for markets. The S&P 500 has had the lowest returns in the current political set up, though it has only occurred four times since 1900.
FINSUM: The market’s outlook for 2019 appears fairly bleak to flat for us. The main reason why is that there won’t be another major tax package, and the great earnings of this year will make 2019 comparisons look weak. Growth is also likely to slow.