What A Biden Win Means for the Stock Market
There are officially less than 100 days until the November 2020 Presidential election. The battleground states have been clearly labeled, and a “blue wave” in these states appears to be drowning President Donald Trump’s reelection hopes.
A recent poll by the New York Times and Siena College revealed that former Vice President Joe Biden is leading Trump in each of the six battleground states—Arizona, Florida, Michigan, Pennsylvania, North Carolina and Wisconsin—by a margin of six to 11 points.[1] Other polls are also pointing to a Biden win.
Interestingly, this isn’t new territory for President Trump. During the 2016 Presidential election, Hillary Clinton was also ahead in the pre-election polls in the battleground states. But, as we all know, President Trump defied the polls and won the 2016 Presidential race. Similar poll leads have been registered by other eventual losers, so we can’t call the race quite so early.
The big question on Wall Street’s mind is: What will a Biden win mean for the stock market? Theories abound. Let’s consider a few today.
Of course, there are plenty of people who believe a Biden win would crush the stock market.
You may recall that President Trump slashed corporate tax rates and the minimum tax on large corporations in 2017. The corporate tax rate fell from 35% to 21%.[2] It was a move aimed at helping American companies invest and enhance their businesses here in the United States. Wall Street cheered the tax cuts, as they made American produced goods more competitive in the world.
Biden wants to roll back these tax cuts. His tax plan would increase the corporate tax rate to 28% and impose a 15% minimum tax on the corporate income, to end the “loopholes”. That plan would be a step backwards in that it would reduce profitability and our companies’ competitive positions. Goldman Sachs estimates that a corporate tax increase could lower the S&P 500’s 2021 earnings per share by $20.[3]
We would expect a readjustment downward in the value of stocks should corporate taxes increase.
On the flip side, several argue that Biden will delay his tax hikes given the state of the U.S. economy and high unemployment rate in the wake of the coronavirus pandemic. Tax hikes in the current recession would be a hard sell to Republicans and Democrats alike, so they could be postponed until the U.S. economy is on more solid ground.
Another theory is that a Biden win could actually support the stock market, simply given that Biden wants to ease trade relations with the U.S.’s biggest trading partners, like China. As we all know, the ongoing trade war between the U.S. and China has impacted the stock market in recent years. Easing the tariffs on Chinese goods could lower import prices and boost corporate profits.[4]
Overall, every campaign trail is littered with a lot of promises, new policies, agendas and theories. Investors and individual Americans alike have to sift through the headlines—and honestly, it’s anyone’s guess as to which policies will be enacted during a Presidential term and how they will impact stocks and the economy.
So, Wall Street will continue to weigh—and react to —these potential changes in the weeks and days leading up to the Presidential election in November.
What’s important to note is that the stock market can (and has) thrived under Republican and Democrat Presidents. In fact, recent data from Bespoke Investment Group revealed a few of the stock market’s best annualized gains under Republican and Democrat Presidents.
• Republican Calvin Coolidge: 25.5%
• Democrat Bill Clinton: 15.9%
• Democrat Barack Obama: 12.1%[5]
These gains were calculated from Election Day to Election Day. How does President Trump’s market gains stack up? Before the market’s plunge back in February and March, the S&P 500 had soared more than 50% from the 2016 Presidential election.[6] With the market drop, the current annualized return stands at 9.2%.
The bottom line: The stock market can rise under Republican and Democrat regimes, so that in and of itself is not the criteria to assess. What’s important to watch are the policies proposed and, more important, those that stand a chance of being enacted.
To ensure that your personal portfolios are well-positioned no matter who wins the Presidential election in November, give me a call today. I’d be happy to review your current holdings and discuss your financial goals.
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[1] https://www.newsweek.com/heres-where-biden-trump-stand-polls-100-days-out-presidential-election-1520425
[2] https://www.whitehouse.gov/wp-content/uploads/2018/02/WH_CuttingTaxesForAmericanWorkers_Feb2018.pdf
[3] https://www.cnn.com/2020/06/10/investing/joe-biden-taxes-stock-market/index.html
[4] https://www.cnn.com/2020/07/08/investing/biden-trump-stock-market-election/index.html
[5] https://www.nytimes.com/2020/07/24/business/joe-biden-stocks-taxes.html
[6] https://www.cnbc.com/2019/12/26/trumps-stock-market-rally-is-far-outpacing-past-us-presidents.html