Trump or Biden – What Could Either Outcome Mean for Investors?
Whoever will lead the US from January 2021, their policies are set to have a dramatic effect on markets – and create new opportunities for savvy investors.
Giles Coghlan, Chief Currency Analyst at HYCM, takes a look at both candidates and the significance their victories might have for investors.
This week’s US presidential election will certainly be one for the ages. American voters will be heading to the polls today to elect Joe Biden as the 46th US President or continue with another four years of President Donald Trump. If you believe the polls, Joe Biden is edging ahead of Donald Trump. If 2016 taught us anything, however, the polls should be viewed with a grain of salt.
Investors and commentators have certainly learnt some important lessons, with many adopting a ‘wait and see’ approach. Those who hedged against a Trump victory in 2016 saw their portfolios take a big hit, though the equities rally in response to Trump’s corporate tax cuts likely helped such investors recuperate their losses over his premiership.
For now, it is important to consider what either a Trump or Biden victory could mean for the financial markets. Both candidates have touted some policies which will no doubt affect the performance of different assets. While everything is still up in the air, there are still significant observations to be made which I have detailed below.
President Joe Biden
First and foremost, I expect that investors will flock to green energy companies listed on the Dow Jones if the Democrats emerge victorious. Although not fully implementing the “Green New Deal” proposed by Democratic members of the House of Representatives, Biden has voiced his support of renewable energy and shown a willingness to gradually ween the US economy off its’ dependence on petroleum oil. At the very least, a Biden administration would be keen to re-join the Paris Climate Accords that Trump pulled the US out of in 2017.
Biden’s strong chances at securing the Presidency at present have already bolstered green energy stocks, with the First Trust Nasdaq Clean Edge Green Energy Index Fund currently trading at an all-time high. Upon a Biden victory, there could be an immediate surge in stocks related to renewable energy; including companies involved in solar, wind, and battery storage.
First and foremost, I expect that investors will flock to green energy companies listed on the Dow Jones if the Democrats emerge victorious.
Tump Back in the House
Although The Economist currently places the chances of a Trump re-election at only 5%, it’s still worth considering how the markets would react to such an eventuality.
One would anticipate an immediate short-term dollar bounce as global markets prepare for the potential heightening of the US-China trade war. As for the long term, although the Dow Jones reacted positively to Trump’s previous corporate tax cuts; more reforms would be needed to counter the negative effects of the aforementioned trade war.
There have been signs that Wall Street, no longer the political monolith it once was, has soured to Trump – indicating a lack of fear that equity markets would be negatively affected by a Biden win.
However, there is one outcome investors should be especially wary of: one in which Trump loses the electoral college but refuses to participate in a peaceful transfer of power.
A Contested Election
Trump’s consistent attempts to cast doubt on the legitimacy of this week’s election has inspired numerous American business leaders to warn the public about such a scenario, with LinkedIn co-founder Reid Hoffman recently stating: “the health of our economy and markets depends on the strength of our democracy”, and that any dispute regarding the election’s outcome would “cause havoc in the business world”.
This is understandable. If 2020 has shown us anything, it’s that markets react negatively to instability and uncertainty. Uncertainty about who is the legitimate President of the United States, therefore, would imbue a fairly high amount of uncertainty into the global markets. This has essentially already been demonstrated throughout the year, with markets wavering each time Trump casts doubt concerning his eventual departure from office.
So, in summary, there are multiple ways that that different outcomes of this week’s presidential election could influence global market stability. For those nervous about their portfolios it is important not to make any rash decisions in a bid to secure short-term gains or to mitigate sudden unexpected losses.
While the financial markets will undoubtedly react to the events listed above, investors should always take a long-term perspective. Understanding how currencies, commodities, and financial markets are likely to be affected by a changing geopolitical environment is always paramount; however, the long-term impact is always more consequential than the immediate one. Those hoping to make effective, prudent investment decisions would do well to remember this.
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