Poll Position

There are still votes from last week’s US election waiting to be counted, but it’s looking like Joe Biden and the Democratic Party will win. So investors, naturally, have been wondering how that’ll affect their portfolios.

 

🕰 Recap

  • Back in July, investors were predicting a “blue wave” in the US election.
  • A Republican Party win would likely be a boon for healthcare and oil companies.
  • A Democrat win would likely boost infrastructure and climate change-related spending.
  • Last week, some investors started to think the people expecting high uncertainty-induced volatility were making a fuss over nothing.

 

✍️ Connecting The Dots

Among the Democrats’ priorities if the party wins the presidency is a hefty coronavirus support package, as well as an estimated $2.2 trillion worth of infrastructure and climate-related spending. Analysts reckon the boost to US economic growth from that spending will more than offset the higher tax rates that are also likely to follow, which might influence where investors put their money.

Higher economic growth typically pushes up the prices of goods and services, which might lead the US central bank to stop them from rising too fast by raising interest rates sooner than expected. And if that means investors can earn more keeping cash in the bank than from their existing, lower-rate government bonds, they’re likely to sell them, sit on their cash, or buy into newer ones offering higher returns.

Investors in stocks, meanwhile, will be paying attention to the renewables industry, whose companies could get a boost from fresh tax subsidies and the prospect of offshore wind projects. On the flip side, Democrats are likely to come down hard on Big Tech, hoping to both limit its influence on elections and its alleged unfair dominance over smaller rivals. Healthcare companies might feel the heat too, as the pressure for more publicly-funded healthcare ramps up nationwide.

Or nothing might happen at all: the two lawmaking parts of the government are likely to be controlled by the opposing parties, which – if history’s any guide – means legislative changes will be slow and piecemeal rather than fast and sweeping. That might explain why US tech stocks rose almost 10% last week as the results trickled in…

 

🥡 Takeaways

1. Value might bubble up beneath the surface.

The overall impact of an election on your portfolio should be limited, especially if you’re a long-term investor. After all, the US stock market has risen by 6-7% since 1993, no matter who was sitting in the White House. That said, the Democratic spending plan which could lead investors to sell off US government bonds bodes better for cheap-looking “value” stocks than it does high-growth stocks: their prices tend to rise more quickly than the stock market overall when government bond prices fall.

2. Pick your emerging markets wisely.

There are a whole host of reasons emerging markets like India and China make attractive bets, but their fates are tied more closely to the election outcome than you might’ve thought. A Democrat victory will probably see a more moderate approach to the ongoing trade war, which might give China a boost. A Republican victory, meanwhile, might benefit India more: investors are expecting the US to help galvanize the country in a bid to reduce China’s influence in Asia.

 

🎯 Also On Our Radar

At least there’s one certainty from last week’s election: voters approved a proposition in California that excuses ride-hailing firms like Uber and Lyft from categorizing their freelance drivers as employees. That means the companies won’t have to worry about dealing with the additional costs it would bring, like vacation pay. It also might be why both stocks climbed over 20%, even though Uber posted worse-than-expected third-quarter results late last week.

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