What the US Election Could Mean for Policy and Portfolios
• If the election produces a blue sweep, we expect a significant policy regime shift
• Policy changes would likely include higher corporate taxes, a stronger regulatory environment and a return of antitrust supervision
• Immediate policy actions would likely be quickly priced in this year and create temporary pressures
In the first half of 2020, investors had plenty of things to think about, and the upcoming US election understandably took a back seat—but now that the election is less than 100 days away, investors are paying closer attention. Members of our research team recently gathered to share their perspectives on potential post-election policy changes and to consider the implications for investors’ portfolios.
Risk assessment: Conceptualizing election outcomes When we think conceptually about US elections, outcomes typically fall into two categories, as shown below. First, there can be a resulting shift in policy that creates beneficiaries in specific industries. A new administration, for example, could be a bit “greener” than the previous one, which would benefit renewable-energy companies. The second type of outcome results in a broader regime shift in policy and creates marketwide ripples.
There is also a third category of Macro Systemic changes—one not usually seen in developed market elections but that lies within the realm of possibility for this year’s US election. Outcomes in this category create big swings that result in an ideological shift that cascades through the full policy framework, creating an immediate impact on asset prices and a long-lasting effect on the economy that reaches beyond the new administration’s term. Currently, we are less concerned about this year’s US election landing in this category; however, it is a tail risk that we continue to monitor.