Many of my clients have called both before and after the election in fear of what the election could mean for their investment accounts. I have explained it as follows. Before I do that, I want to say these are my opinions only and I in no way pick sides or discuss politics, but I hope to inform you as to what I see could be the impact.
The following are in no special order but represent my beliefs of the benefits of the outcome of the election.
- Biden should be softer when dealing with other countries, this could result in:
a. Less volatility in equity markets
b. Less tariffs on foreign goods. Tariffs raise the prices of goods we buy from overseas manufacturers. Unless there is a domestically manufactured alternative that takes market share from overseas manufacturers the net result of tariffs is just higher costs for consumers. Lower costs to consumers on foreign bought goods mean more savings, investments, or the ability to spend more on other things. - Biden should negotiate with less vigor
a. Senator Majority Leader Mitch McConnell may have an easier time compromising with Biden which may result in more deals being made in Congress. - The Democrats in the House of Representatives lost some seats and have a lower majority lead over Republicans which means they must be careful not to lose the House by being too extreme. In addition, many feel that the seats lost was due to Nancy Pelosi and how she interacted with President Trump. Many believe that she may be softer moving forward and work harder to compromise with Republicans, thereby easing policy decisions and fostering more compromise.
- Stimulus should come in 2021 and possibly an infrastructure package too but if the Senate remains Republican. The final packages may not be as extreme as if there was a Blue Wave. i. Because of stimulus and government spending injected into the economy, many speculate that the Federal Reserve (FED) will have to increase its Quantitative Easing (QE) efforts to offset this. QE has been a major part of the economic growth since the recession of 2009, so this is good for markets.
- If we get a smaller stimulus deal, interest rates should stay “lower than normal” for longer which could mean more potential for growth due to lower borrowing expenses for companies.
1. I do see interest rates higher than they are now as the economy recovers after Covid and potentially running higher as more positive vaccine news comes to light. This also makes Bonds less likely to offer real returns over the future decreasing competition for investors dollars. - If the Republicans keep the Senate which looks likely but not guaranteed, it will be difficult for the President-Elect to increase taxes much or increase regulations which is good for companies. However, if the Republicans do not retain control of the Senate….
a. There is fear that corporate taxes will increase which would lower corporate earnings which would negatively impact stock prices or valuations.
b. Investors fear that Capital Gains taxes will be increased would hurt investors investment returns.
c.Increased regulations will make it harder for companies to become dominant in their fields and could lead to the breakup of some of our country’s greatest companies.
In summary, the markets have demonstrated that they are happy by moving up since the election was “decided.” I look forward to investing in 2021 when seemingly we should have:
- Relatively low interest rates (although as mentioned possibly higher than they are now)
- Additional stimulus and government spending
- Additional QE by the FED
- Taxes that are close to the same as they are now instead of much higher which would hurt companies’ earnings as well as investors gains in the market
- Regulation that does not change much at all.
- A less volatile environment around our government
- A vaccine that will come (although we are not 100% confident of the exact timing) and allow people to get back to their lives and work lives close to normal
Past performance is no guarantee of future results. Investing involves risk and the potential to lose principal..
The opinions expressed in this commentary are those of Jordan Kerner and are not meant as investment advice or to predict or project the future performance of any investment product. The opinions are current through November 12, 2020, are subject to change at any time based on market and other current conditions.
Forward-looking statements are subject to numerous assumptions, risks, and uncertainties, which change over time and cannot be guaranteed. The actual results may be materially different than the statements herein.
This commentary is being provided as a general source of information and is not intended as a recommendation to purchase, sell, or hold any specific security or to engage in any financial or investment strategy. Please consult your financial advisor before making financial or investment decisions.