In my last blog I showed that Mr. Trump is not the stock market president, in that the U.S. stock market has had better returns under various presidents during their term and that since 1948, the U.S. stock market has done better under a Democratic president than a Republican. History also shows us that in all three presidential election years where there was a recession, the incumbent lost the election.

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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Founded in 2006 to manage and service seven family offices, today Matco offers the benefits of our extensive investment management experience to individual investors, foundations, endowments, condominium corporations, trusts, corporations and not-for-profit organizations.

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Matco Financial is an independent, privately held discretionary investment counsellor and asset management firm that serves the needs of individual investors, institutions, advisors, trusts, corporations and not-for-profit organizations. Matco provides investment advisory services to investors on a discretionary basis through mutual funds and separately managed accounts. This communication is intended for information purposes only and does not constitute an offer or solicitation by anyone in any jurisdiction in which such an offer or solicitation is not authorized or to any person to whom it is unlawful to make such an offer or solicitation. Matco Financial Inc. makes no representations as to the accuracy or any other aspect of information contained in other websites. All statements that look forward in time or include anything other than historical information are subject to risks and uncertainties and are not guarantees of future performance. Investors should not rely on forward-looking statements. Actual results, actions or events, could differ materially from those set forth in the forward-looking statements.

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