The 2020 election season has almost ended. What do election outcomes mean for investors? We dug into campaign promises, economic performance, and other issues during our recent webinar, “The election is almost over…now what?”
The Election is Almost Over…Now what?
Although campaigning has ended, votes are still being counted and recounted, and lawsuits are unfolding. That said, it appears Democratic candidate, Joe Biden, will be declared President. The House of Representatives will be controlled by Democrats, and Republicans will control the Senate. We will see a continuation of the status quo in Washington despite the changing hands in the White House.
Many people have asked: What do election outcomes mean for investors? The small amount of lingering uncertainty has not caused turmoil in the markets, so stay the course and don’t let the media scare you into panic-selling. You may hear advice on investing in clean energy while avoiding aerospace and defense, but history indicates the opposite: clean energy stocks have trended downward during past Democratic administrations, while aerospace and defense stocks have gone up. Avoid conventional wisdom and don’t simply lean on something you believe to be true when investing. Look at the data.
In the short term, we anticipate:
- The anticipated stimulus package is more likely to pass, but not this year.
- Federal reserve and significant tax policies are likely to remain unchanged.
- We aren’t likely to see significant tax policy changes unless the democrats gain control of the Senate.
- Interest rates will remain low.
In the long term, we anticipate:
- Decreasing in trade tensions with China, which will allow for an increased global flow of goods.
- Lower tariffs on steel, aluminum, and goods from Europe.
- Increasing regulations, which will favor large vs. small companies.
- Increased energy regulation, which will also favor US energy companies due to the increased prices brought on by these regulations.
- A change in the US approach to the Middle East and Iran will also increase energy costs.
- Federal Reserve Policy is not likely to change due to the election, and interest rates are likely to remain low.
COVID’s impact is in full swing, and we will likely see one or two more quarters of extremely robust economic recovery before growth begins to level off. Unemployment will continue to improve and stabilize around 5%. Growth is expected to look very similar to the way it did during the second half of the Obama administration.
Should I sell my stocks before Biden takes office?
History shows that the President has a very minor impact on long-run returns to investors. There’s not a good reason to not buy stocks or abandon U.S. capital markets right now. The overall economy is being driven by the Senate and COVID. Although there are still four scenarios out there, the most likely scenario is that Biden becomes president with a Republican-controlled Senate. In light of that outcome, we expect:
- Tax and policy tweaking with little actual change
- Major policy changes advertised during the campaign are unlikely to pass due to the Republican-controlled Senate.
- A COVID vaccine on the horizon, the release of which will create a major economic boom. American savings have increased an estimated $2 trillion since February and will spend when they feel safe resuming life as normal.
- Unemployment will continue to improve.
The best piece of advice is to stay the course, protect your piggy bank, and diversify, diversify, diversify. As 2020 has shown us, you can’t have all of your eggs in one basket. Don’t touch your portfolio (or your face) and don’t let emotions or politics derail your financial plan.
Will tax rates change under a Biden administration?
We predict a number of tax changes, which may kick in as early as tax year 2021 (meaning they won’t impact your 2020 return). Those will be likely to increase taxes on corporations and capital gains, repeal the SALT deduction limits, and increase FICA taxes in upper levels of income. Candidate Biden proposed major spending changes, but these seem unlikely to materialize at the levels promised given the lack of available funds.
We strongly suggest scheduling a meeting with your financial advisor before the end of 2020 to review your taxes and other financial plans. There have been many changes this year that could impact not only your taxes but also your long-term savings goals. A strategic planning meeting will ensure you are making the moves that are right for your unique circumstances. Click here to request your strategic planning meeting now.