TRUMP VS. BIDEN – WHAT MATTERS TO INVESTORS
With the 2020 presidential election less than six weeks away, let’s look at the election from two angles. First, who do the experts predict will be the next president? Second, what are the potential macroeconomic consequences of each candidate’s policies?
Let us consider two experts that have a track record of correctly predicting presidential elections. First is Moody’s Analytics, which created a Presidential Election Model that has correctly predicted every election since 1980, except for the 2016 election. Moody’s predictions are based on examining political and economic variables under three models.
Based on their models, Moody’s expects Senator Biden to win, so long as there is typical or high Democratic voter turnout. If Democrat voter turnout is low, they predict a Trump win.
The second expert is American University Professor, Allan Lichtman, who has correctly predicted every presidential election since 1984 (including 2016). In 1980, Mr. Lichtman and Vladimir Keilis-Borok examined every presidential election from 1860 to 1980 and as a result, they developed 13 true or false statements or “keys” to determining the election outcome. If the answer is true it favours the existing president, if false it favours the challenger. The winner is the one with seven or more in their favour. As shown, below using these statements, their model is currently predicting a Biden victory.
Moody’s recently published a study of the projected macroeconomic consequences of the policies proposed by the two candidates. They examined the candidates’ proposed changes to tax codes, government spending, and other economic policies and the impact.
Below is a summary of the sweep scenarios, meaning if each party controls the presidency plus the Senate and the House of Representatives to get their economic and social policies passed into law. According to Moody’s, a Biden Presidency would have a larger positive impact on the U.S. economy.
Bottom Line
Whether it’s a Biden or Trump Presidency, the U.S. economy is expected to do well over the next four years. Recent U.S and global economic data point to a continued economic recovery despite concerns about a potential second wave of COVID-19. With both the Canadian and the U.S. central banks committed to low-interest rates for the next few years, we believe long-term equity investors should benefit from attractive dividend yields and potential capital appreciation. If concerns about the outcome of the presidential election or transition of power cause global stock markets to pull back, we would view this as a buying opportunity for long-term investors.
Anil Tahiliani, MBA, CFA
Vice President, Portfolio Manager
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