Displaying items by tag: biden
The market has been increasingly betting that Biden is going to win the election, but there is still a great deal of uncertainty. The outcomes seem like almost diametrically opposed routes for the country, and accordingly it feels like many asset classes could head in opposite directions depending on the outcome. With that in mind, Savvas Savouri of ToscaFund Asset Management, has published a very interesting and clear diagram explaining how each asset class will react to either a Trump or Biden win (see above). The most interesting thing about this is how similar the response will be across several asset classes. For example, no matter who wins, it appears likely that commodities, gold, US domestic staples, and exporters will gain, while in either scenario, Treasuries, REITs, and the Dollar will lose.
FINSUM: This is an excellent diagram that gives a concise view on how things may change following either a Biden or Trump victory. Two things jump out to us here. Firstly, that tech shares look likely to lose if there is a blue wave; and secondly, that the Dollar is headed down in either outcome, so exporters are likely to do well. It is easy to imagine that a blue wave would result in a broad rally of the S&P 500 that is not led by tech.
Investors are increasingly betting on a blue wave. More interestingly, the market’s calculus for what that blue wave to could mean to stock prices and the economy is changing. For much of this election cycle, a sweep by the Democrats was seen as a negative for the economy versus the status quo. However, in recent weeks investors have been shifting the other way—seeing a blue wave as a win for the economy. The reason why has to do with infrastructure spending and bigger and longer-term stimulus packages. While the possibility for this has been hurting Treasury prices because of the likely increased debt load, it also means that both infrastructure stocks and small caps seem poised to gain as we approach the election and well after it.
FINSUM: Small caps have just recently started to outperform their large cap cousins, a sign of the shift in perspective. Infrastructure stocks seem a good bet because no matter who wins the election there will probably be some deal on that front.
There has been a big change of opinion for investors over the last two weeks or so. For almost all of this year, a Biden victory, and especially a blue sweep were seen as potential negatives for the economy vis-à-vis a Trump reelection. Any gains in the polls for Democrats was seen as a negative for the economic outlook, particularly because of the chance for higher taxes. However, the rising odds for a blue sweep have managed to assuage an even bigger fear for investors—a contested election that could drag on for months. Accordingly, gains in the polls for Democrats have seen rising markets. Goldman Sachs feels strongly enough to say this: “All else equal, a blue wave would likely prompt us to upgrade our [US economic growth] forecasts”.
FINSUM: We think there are two specific reasons perceptions have changed. Firstly, the decreased chances for a contested election (very arguable if that is actually true); and secondly, the odds for bigger stimulus and infrastructure packages, which would be positive for the economy.
Goldman Sachs is stressed about the election. In particular, they are concerned about what a contested outcome could mean for stock prices. Because of that, they think the debates which started this week have the potential to be an “important catalyst for investors to assess risks”. The debates have the possibility of swinging the election strongly one way or the other, which means they can be tipping points for investors. “One way to lower the odds of a contested outcome (that brings noise and volatility) is via a large margin of victory that cannot be undermined”. That said, according to the bank’s strategists, even a big win could have risks: “Although undoubtedly under the clean-sweep scenario there is the negative implications for risk assets to be considered, stemming from a Democratic legislative agenda including higher corporate taxes and increased capital-gains taxes”.
FINSUM: Goldman is making it abundantly clear that they think most paths for the market lead lower—likely until the end of the year. With Trump now having COVID, that makes uncertainty even higher.
There has been a lot of speculation that with Biden leading in the polls, Reg BI may be likely to get scrapped next year. Now obviously no one has great insight into how the election will go, but according to former regulators, even if Biden gets elected, it seems unlikely the rule would get scrapped. According to a former regulator at FINRA, the SEC has both cultural and structural barriers to overturning the rule. The SEC is run by a group of five commissioners, no more than three of whom are allowed to be from one party at any given time. Furthermore, while the White House does appoint a head of the commission, the group likes to set its own fresh agenda, and therefore largely sets its own objectives. According to Thomas Selman, a former vice president for regulatory policy at the Financial Industry Regulatory Authority, to “reverse it right away, it's just not something they have an appetite for”.
FINSUM: No one is certain how this will play out. However, in our view the most likely path is not getting rid of the rule, but rather much stricter enforcement of it. The rule itself leaves much to enforcement discretion, so that seems an easier avenue than scrapping and re-creating a new rule.