Americans will be going to the polls this November against a backdrop of still high unemployment, elevated tensions with China and, potentially, an ongoing, rampant coronavirus pandemic. Joe Biden, the Democratic party candidate, is the current favourite, with the Democrats also seen taking both houses of Congress, though – as 2016 showed – Donald Trump should not be underestimated.
Odds of Winning the Presidential Election (%)
• A Joe Biden victory could mark a clear shift to the left compared with Trump. Biden advocates a rise in corporate taxes that could weigh on the stock market but, since those taxes would be used to boost government spending, we would expect any negative impact on the real economy to be small.
• Biden could be forced to move even further to the left if he is beholden to progressives in a Democrat-controlled Congress. Alternatively, however, he could pivot to the centre and seek bipartisan compromise with mainstream Republicans.
• Should he win a second term, Trump would push for even looser monetary policy and more deregulation. However, tensions between the US and China could also ratchet higher, while tariffs may be extended to a wider range of countries and industries. A second Trump term raises the risk that protectionism becomes more entrenched globally.
• Regardless of who is in the White House and the make-up of Congress come January 2021, we think that a gradual economic recovery and continued support for financial markets from the Federal Reserve mean that the outlook for US equities is fairly bright.
President’s Party & S&P 500 (Log Scale)
Source: Refinitiv, Capital Economics