This week’s memo is going to be a bit more abbreviated than most as we’re waiting for – as we’re sure you are as well – an outcome from tomorrow’s election to give us a better understanding of where we’re going next in portfolios.
If you had the opportunity to listen to our pre-election call (you can re-watch it HERE), there were a few very clear takeaways that we’d like you to understand as we head into Tuesday night.
It breaks down like this: If Trump wins, the markets will love it. We know that. Low tax rates continue. Regulation continues to be less and less of an issue for U.S. corporations. Simply put: the market knows how to deal with Trump and will be happy to continue to do so.
If Biden wins, a lot of that will change. Tax rates will go up. Regulation will increase. Policy priorities will shift (i.e. to the environment and infrastructure). All of that could be bad for the market…in the long-term. However, the markets and investors will have to see exactly which policies are put in place and how quickly they will go in effect. And more importantly, the massive amount of stimulus the Democrats will undoubtedly unleash on the economy will have a stabilizing impact.
So, when we come back to our fundamentals (which are reasonably good) and look at the immediate path over the next few months, both candidates can be – and should be – decent for the market.
There is one very bad outcome, however. I believe on our call last week it was called the “Doomsday Scenario” and would certainly be the most 2020 thing to happen to us so far this year: an election without a clear result. While we believe the chances of this are very low – we are watching closely and will adjust portfolios if necessary should that occur.
Pre-Election Jitters
Last week was a fun one in the markets. The S&P 500 was down 3.85%. While rising COVID cases certainly played a role – we would point you to the market’s inability to settle on an election outcome as the main reason behind this swing. In fact, it’s not that far out of line with the last trading week pre-election in 2016 when the S&P500 was down 2%.
We continue to remain constructive on the markets in the long-term and may look at these temporary swings as opportunities to put capital to work. As you will recall, we took some risk off the table in September as an election hedge. You may see us get more aggressive with those funds if the market continues to give us room.
We’ll be back to you shortly after the election. If you have any questions in the meantime, please don’t hesitate to let us know.
Sincerely,
