Of the 1,164 investors surveyed by Investing.com, 53% said that if the stock market still looks good by Election Day next month, incumbent Donald Trump will end up winning. And most of them think the market will be better off with Trump then Biden, though there are some major caveats worth pointing out before you think a Biden win a short sellers dream.
Americans head to the polls in less than four weeks. Mail-in ballots, done for the first time this year, suggests that unlike other years throughout history, an outcome won’t be known on election night. The last time that happened was in November 2000 in George W. Bush versus Al Gore.
According to the Investing.com survey, a whopping 90% said that Trump’s catching Covid-19 did not make them nervous enough to change their investing positions.
“The initial downward move was nothing more than a knee-jerk reaction to the dramatic headlines,” says Jesse Cohen, senior analyst at Investing.com. “As the hours and days progressed it became clear that President Trump was not in a life-threatening situation, easing worries over a sudden deterioration in his health.”
Moreover, 60% said they have no plans to make any changes to their investments ahead of the presidential election. And 86% think there will be a “moderate impact” or a “significant impact” to financial markets once we know who the winner is.
Overall, beyond the election result, Wall Street’s main concern is whether the winner will introduce a fresh round of stimulus. “These are far more important factors likely to influence the market in the coming weeks,” Cohen says.
PredictIt has Biden beating Trump easily, but Trump supporters in the market have shown that the chart looks almost identical to the Trump versus Hillary chart at the same time in October 2016.
Nearly every national poll of eligible voters has Trump losing his re-election bid.
These polls naturally have investors pondering a Democratic Party sweep, and thinking accordingly.
“Investors have reevaluated the likelihood and timing of more fiscal stimulus versus higher taxes,” says Jason Draho, head of asset allocation at UBS Global Wealth Management.
In other words, if Biden does raise taxes on the wealthy (he says he will raise personal income taxes of those earning over $400,000 a year) and reverses the corporate tax cuts, big Wall Street banks may be fine with it so long as it comes with massive stimulus, especially bailout funding for New York and California.
A phase four coronavirus relief bill was widely expected to pass Congress and be signed by Trump before the end of the fiscal year on September 30. Now with the odds of passage before the election shrinking, it’s instead likely to be the Democrats’ first priority post-election if they win the White House.
“Concern about higher corporate taxes and more regulation in a Blue Wave still exist, but they’re taking a backseat to the anticipation of the fiscal floodgates being wide open in 2021,” says Draho.
Biden has called for an increase in the corporate tax rate to 28% and to have more companies and citizens “buy American,” a loose term that, if it relates to Buy American laws currently on the books, does little to actually increase buying U.S. made as it is only for government procurement, and exempts nearly all of the EU.
The buy American rhetoric works, however, as Trump has proven. Biden is clearly taken a note from the Trump playbook. He may have had a change of heart on this front, but no one will know for sure until Biden wins.
Increasing taxes would negatively impact earnings for stocks, creating an obvious headwind for some sectors, especially oil and gas.
“The key is where the spending is targeted, as Biden’s plan will continue deficit spending. Areas like infrastructure or industrials may be beneficiaries,” says Hightower’s chief investment strategist and portfolio manager, Stephanie Link.
“A Biden Presidency would likely bring a larger, not smaller economic relief bill which would be a net positive for risk assets,” Link says.
Large investment houses are mostly focused on a Biden win, as the outcome of a status quo victory, with Trump in the White House and a divided Congress, already understood.
BlackRock Investment Institute said on October 5 that they were going neutral U.S. equities and blamed the dying stimulus package that Wall Street’s been begging for (along with the travel industry) and an “extended epidemic” threatening to derail the market’s run. Renewed U.S.-China tensions and a divisive election also weigh. That makes sense. But they are overweight Europe, and have been for some time now, mainly on the notion that it is cheaper priced and has not rallied anywhere near as strongly as the S&P 500.
No matter the outcome of the election, investors still believe the economy is on track to improve next year.
According to the Investing.com survey, over 60% are looking forward to a better 2021, economically speaking.
They are more split on how long it will take for the U.S. economy to show a complete recovery. Some 43% believed we could see it happen next year, while a minority 16% said the economy will still not be firing on all 8 cylinders next year, no matter who wins.
Investors agree that a Trump victory will provide the better outcome for U.S. financial markets, with 65% of respondents believing this to be the case and just 16% seeing former Vice President Joe Biden as a better outcome for the markets.