The stakes are always high for elections. However, the stakes for the 2020 election feel much higher than usual due to the global pandemic, economic pain, and social unrest. With such an unprecedented election occurring at a time of great divisiveness in the country,1 we highlight five policies where Democrats and Republicans are the most diametrically opposed – and how those policies could impact the market.
Note that delegates to the Democratic National Convention approved their 2020 party platform in August. Republicans are campaigning based on their 2016 platform.
Biden: Former Vice President Joe Biden, the Democratic candidate for president, has called for higher taxes for high wage earners and corporations. His plan would raise the tax rate on high earners back to 39.6% (where it was prior to the Tax Cuts Job Act), tax capital gains at the same rates as ordinary income and increase the corporate tax rate from 21% to 28%.2 Higher taxes could curtail earnings growth, as after tax cash flows would be reduced.3
Trump: For the Republican President Trump, lower taxes are expected to remain a focal point in his re-election bid. In May, White House economic adviser Larry Kudlow floated the idea of a 50% discount to the corporate tax rate for firm that bring their operations back from other countries.4 Additionally, in August Kudlow and Treasury Secretary Steven Mnuchin informed the media that Trump favored cutting income and capital gains tax rates.5 Lower taxes at the corporate and consumer level may spur consumption and economic growth, and benefit firms with high effective tax rates.
Biden: Biden’s platform theme of “Build Back Better” features policies to “Buy American.”6 However, Biden is still likely to adopt a more globalist worldview than Trump – potentially removing some of the tariffs the Trump administration placed on imported goods. With Biden likely maintaining better relations with the World Trade Organization, the potential exists for more global trade alliances and the re-negotiation of the Trans Pacific Partnership.7 These actions would likely be positive for global growth, most specifically in regions impacted by current tariffs.
Trump: Trade policy under a Trump second term will likely be consistent with his first term. Tariffs and bi-lateral trade agreements will likely be the main tools, along with hawkish rhetoric. Trump may move beyond additional sanctions on China, having put a 10% tariff on aluminum from Canada in August.8 Trump’s “America First” ideology on trade is likely to benefit more domestically-oriented market segments.
Biden: As part of the former vice president’s “Build Back Better” plan, he will focus on investing in modern and sustainable infrastructure to encourage clean energy. He has pledged to spend more than $2 trillion to achieve carbon neutrality within the US power sector by 2035. Biden also will seek to shift behaviors toward electric vehicles and public transportation, calling for 500,000 electric vehicle charging stations to be installed nationwide.9 Regulations on natural resource production are likely to come back as well (i.e., the Paris Climate Agreement).10 All told, firms focused on renewables and intelligent infrastructure may benefit.
Trump: The Trump administration would likely continue to loosen environmental regulation. Like Biden, Trump has discussed additional infrastructure spending11 as a way to create jobs and foster economic growth. However, the Trump plan emphasizes rebuilding airlines, highways, railroads, and bridges, with little support for clean energy. Trump’s focus on more traditional infrastructure spending may lead to higher commodity prices as demand for natural resources increases, and potentially benefit those producers.
Biden: The centerpiece of Joe Biden’s health care reform is creating a public option for Medicare and expanding the Affordable Care Act.12 His health care agenda also centers on COVID-19 pandemic responses, such as supporting US production of personal protective equipment, novel treatments and other medical devices. All measures may be beneficial to device and novel medicine makers.
Trump: Continuing on his current path, Trump likely would focus on further repealing parts, or all, of the Affordable Care Act.13 There has been no mention of a change in COVID-19 response policies. And while the president has made frequent comments on drug pricing, he has been unable to have any sweeping policy changes with only a recent executive order impacting Medicare drug prices.14 Overall, a Trump administration may be slightly more beneficial for the broader health care sector as a whole given the lower headline risk from drastic health care policy changes with respect to universal health care and drug pricing protocols.
Both the Trump administration and the Democrats have advocated for more technology oversight, particularly with respect to data privacy concerns and social media behavior.15 But differences exist when it comes to regulation.
Biden: On the campaign trail during the primaries, Biden criticized the current antitrust process.16 Along with running mate Senator Kamala Harris (a former prosecutor), a Biden administration may enforce stricter antirust regulation. The Democratic party,17 in the aggregate, has been in staunch support of this regulation, adding to the potential for a more stringent stance that could hamper large tech-related firms.
Trump: The Trump administration over the past few years has favored more deregulation of the tech sector, via the rolling back of net neutrality18 and broadband privacy rules.19 With bank mergers having moved quickly through the approval phase under Trump,20 a second term would likely continue the trend of loose regulation. Because his first term antitrust actions have primarily been centered on televised hearings of tech CEOs appearing before Congress, a second term may leave big tech alone, meaning minimal headline risks.
Election outcome impacts
The likelihood of these policy platforms being legislated will depend on the outcome of Congressional elections, however. While some policies could be implemented using executive order or with bipartisan solutions, if Congress remains divided, the probability policy becoming law decreases.21
While these five policies are most likely to drive markets, a non-policy issue also may move markets. The results on election night may not be known for weeks22 or contested, given the unprecedented nature of voting during the pandemic. If this does occur, investors girding for gridlock may look to the 2000 election where the president was decided 36 days after the election for insight into market behavior. Back then, at the turn of the new millennium, gold and long-term Treasuries rallied when all the Florida hanging chads23 were counted.24
Starting on September 29th there will be four debates leading up to November 3. In addition to providing more clarity on the candidates’ policies, the debates will surface other issues that could add context to any potential investment positioning opportunities. In our next post, we will check in on the probability of these policy platforms becoming a reality and suggest how to use ETFs to position portfolios ahead of and after the election.
1 According to the Associated Press-NORC Center for Public Affairs Research Poll in June, 2020 Close to two-thirds — including 37% of Republicans — say the current administration is making America more divided. 2 “Details and Analysis of Former Vice President Biden’s Tax Plan”, Tax Foundation April, 29, 2020 3 For perspective, when taxes were cut under the TCJA, the changes accounted for approximately 23% of 2018 earnings growth for S&P 500 firms. Estimates on the negative impact to earnings under the Biden tax plan vary, but may be in the mid-single digits per Bank of America “US Viewpoint”, July 20, 2020 4 “White House’s Kudlow floats cutting U.S. corporate tax rate in half”, Reuters May 15, 2020 5 “Trump ‘Looking at’ Proposing Major Tax Cuts, White House Officials Say”, Forbes, August 12, 2020 6 “In ‘Buy American’ Speech, Biden Challenges Trump on the Economy”, New York Times, 7 “TPP Tariffs and China: What Biden Might Do on U.S. Trade Policy”, Forbes August 25, 2020 8 “Trump says he signed order reimposing 10% aluminum tariffs on Canada", CNBC August 6, 2020 9 https://joebiden.com/clean-energy/ 10 https://joebiden.com/climate-plan/ 11 “Trump Team Weighs $1 Trillion for Infrastructure to Spur Economy”, Bloomberg June 15, 2020 12 “DNC2020: How Joe Biden’s health care place would build on Obamacare”, VOX August 20, 2020 13 “Trump Administration Asks Supreme Court to Strike Down Affordable Care Act”, New York Times June 26, 2020 14“Trump deadline for drug pricing order passes with no action”, The Hill, August 25, 2020 15 Both Trump and Biden are in favor of revoking Section 230 of the Communications Decency Act 16 “It’s Not Just Warren. The Next Democratic President Is Coming for Your Monopoly”, Bloomberg, July 3, 2019 17 “Democratic calls to break up Big Tech raise fears in Silicon Valley”, Financial Times, February 17, 2020 18“F.C.C. Repeals Net Neutrality Rules”, New York Times, December 14, 2017 19“Trump signs repeal of U.S. broadband privacy rules”, Reuters April 3, 2017 20 “Bank mergers get faster under Trump”, Wall St. Journal, February 13, 2019 21 Per PredictIt figures as of September 3, 2020 the Democrats have an 83% probability of retaining the House of Representatives but only a 53% chance of assuming control of the Senate 22“Election officials warn it could take weeks to determine results in November” CNBC, August 14, 2020 23 “The Florida Recount Of 2000: A Nightmare That Goes On Haunting” NPR November 12, 2018 24 Gold rallied 2% and long-term treasuries rallied by 6% between election night Nov 7, 2000 and the day the Al Gore conceded to George W. Bush on December 13, 2000
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