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US Election – an investor's guide

Who will win the US election, Biden or Trump? We take a closer look at the race for the White House and what all this could mean for investors.

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

Charlotte Walsh

Published on 23 October 2020

This article is more than 6 months old

It was correct at the time of publishing. Our views and any references to tax, investment and pension rules may have changed since then.

The US General Election is on 3 November. With less than a month to go, both the polls and markets seem to be expecting a clear win for Joe Biden – the Democratic candidate.

A ‘blue wave', meaning the Democrats win the presidency as well as control of both the Senate and House of Representatives, seems to be looking increasingly likely. The national poll currently puts Biden ahead with a 10-point advantage.

Meanwhile the US stock market continues to remain optimistic, hovering around all-time highs.

It could be argued that a clear result, for either candidate, would be positive for markets, whereas a disputed election result could stir up the pot. President Trump has already publicly questioned the legitimacy of the potentially large number of postal votes. So a failure to produce a clear result would doubtless lead to a period of political and legal turmoil.

A Biden win – what it could mean for investors

Goldman Sachs predicts a weaker dollar as Biden plans an increase in taxes, particularly corporation tax, which he plans to increase to 28% from the current 21%. His plans also include increased government spending, and a minimum tax on companies that do business in the US and make over a certain amount.

Investors won't need to be invested in the US stock market to feel the effects of the election, UK shares will also be affected. Lots of British companies have operations in the US, most notably large FTSE 100 businesses like BP, GSK and Ashtead. Although exposure to the US is not limited to the largest companies.

A Biden and Democrat win will likely mean an increase in regulation, affecting companies in certain sectors including financial services, technology, oil and gas, and pharmaceuticals.

In fact, the Democratic Party in the House of Representatives recently recommended breaking up the monopoly of the large technology companies. This would be in an effort to reduce their market dominance and promote more competition. This could be especially bad news for the household tech giants like Facebook, Amazon, Apple and Google owner Alphabet.

While it might sound like bad news for some, there are others who could stand to benefit from a Biden win. Sectors like infrastructure, education, green energy, and healthcare could all be among the winners.

Biden has promised a $2 trillion investment in clean energy with the aim of achieving a carbon pollution-free power sector by 2035. His plans also include investment in infrastructure, the car industry and public transport, creating millions of new jobs, under his “Build back better,” slogan.

His plans for healthcare include protecting and expanding the Affordable Care Act to ensure greater choice, less complex and cheaper healthcare for all Americans.

Could Trump stage a comeback?

On the other side, should Trump stage a last-minute, surprise comeback – as he effectively did in 2016 – it's unclear whether much would really change. His plans include more deregulation, particularly for the energy and financials sectors and trade protectionism to reduce the trade deficit – this will likely increase friction with China.

Like Biden, he's also stated big plans for infrastructure spend. Sectors that could benefit from a Republican win include telecoms, energy, and financials, while renewable energy would come under pressure.

An unclear result could mean market ups and downs

Finally, an unclear result, although looking increasingly unlikely according to the polls, is not impossible. Mr Trump might refuse to concede and launch legal action over postal votes, leading to a period of uncertainty, both politically and in the markets.

The economic stimulus package, currently stuck in Congress, would be delayed further. If this does happen it's likely there'll be short term market turbulence and potentially even a market correction considering how highly valued the US already is. It could also see the dollar weaken.

So what does this mean for investors?

If the following data from Invesco is anything to go off then investors should think about staying put. Those who stayed fully invested in the US stock market after elections since 1980 have fared better than those who stayed out for the first 100 days of a presidential term. In fact they made almost double the amount on $10,000 invested over 40 years. Remember though that past performance is not a guide to the future.

Looking to the long term and riding out any short-term volatility is a strategy that we like. After all, it's not the timing of the market that matters, but rather the time in the market.

There's also a school of thought that Presidential elections do not, in the long run, affect what happens in the markets. Goldman Sachs estimates that the S&P 500 will rise by 14% by the middle of 2021, whoever wins the election although there are no guarantees. It's also likely that other key events like a successful vaccine or policies around interest rates and how much money's in the economy will affect valuations more than who is President.

No one knows exactly what will happen. While we can make guesses of who'll win and then what the stock market will do after, that's never normally a good idea. While not being invested in the US would have hurt your performance in the past, that doesn't mean you should overdo it and have too much moving forward. Having a balance is always a good idea, especially in uncertain times. Investments will rise and fall in value so you could get back less than you put in.

Investors should consider their own time horizons, making sure they have a well-diversified portfolio. That means no matter who gets in the White House or which industries flourish the most, you'll stand to benefit in the long run.

This article isn't personal advice. If you're not sure if an investment is right for you make sure you ask for advice.

Charlotte Walsh is a partner at the Boscobel & Partners consultancy.

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