It is hard for an investor to refrain from wondering what impact the US presidential election on the 3 November might have.
On trading floors, parsing the two candidates’ economic platforms every four years around the month of October has become a time-honoured ritual – the aim being to adopt adequate positioning just after the election, depending on who comes out on top.
Getting that right could be doubly important this time, given that from an ideological standpoint the economic agendas put forward by the candidates are diametrically opposed.
Donald Trump is calling for further tax cuts that would benefit some sectors much more than others, whereas Joe Biden advocates greater, more targeted government spending – to be paid for by higher taxes.
Trump supports the US oil industry, particularly its shale producers, whereas Biden is promising heavy emphasis on the energy transition if he wins.
In broader terms, it seems that Biden wants to help Main Street get even with Wall Street, or at least give workers a fairer share of the wealth created.
Though that does not necessarily make him the big bad wolf, it does suggest his victory could spell trouble for the stock market (with Trump of course even warning of an out-and-out collapse).
And yet past experience demonstrates the futility of such attempts to assess the two contenders.
True, presidential elections are always important for citizens, and even more so in a country as politically divided as the United States of America is today.
It is hard for an investor to refrain from wondering what impact the US presidential election on the 3 November might have.But the subsequent behaviour of equity markets teaches us that they are in fact relatively unaffected by electoral outcomes.
Health of economy
An example? During the Obama years and the Trump presidency, the S&P 500 performed fairly similarly (gaining between 12 per cent and 14 per cent annually), as did the dollar (ranging from –0.7 per cent to +2.3 per cent for European investors).
The three sectors that did best under Obama were consumer discretionary, tech and healthcare, while over the past four years the top three performers have been – yes, you guessed it – tech, consumer discretionary and healthcare.
Moreover, though the two periods saw highly opposing economic policies, the same sectors got the short end of the stick: banking and energy.
It is also worth recalling that US interest rates have been trending downwards for the last three decades.
It would take us well beyond the scope of this article to discuss why, despite all their efforts, political leaders ultimately have so little influence on deeper economic trends, and on how those trends affect financial markets.
Such a discussion would require serious attention to the role played by what are still fairly independent central banks, the power enjoyed by the largest corporations to take laws and regulations in their stride, and the continued sway of the Washington Consensus.
The main point at this stage is at least to avoid overestimating the significance for markets of which candidate the US voters choose.
That, of course, is assuming a choice actually gets made.
It is also worth recalling that US interest rates have been trending downwards for the last three decades.Because the novel aspect of the November election is that the outcome is unlikely to emerge clearly on the following day – or even in the following weeks.
The country’s institutions could indeed be temporarily deadlocked by a wide range of legal and other challenges.
The prospect of such uncertainty – suddenly heightened by the probable appointment of a new Supreme Court Justice – makes the impact of this election even dicier than usual.
But that is merely an additional reason not to lose sleep over who wins.
To do well in the stock market, it is much more important for investors to determine which sectors and companies have enough inherent strengths and cyclical or deep secular trends going for them to be able to generate rising profitability in the years to come.
Didier Saint-Georges is a member of the strategic investment committee and managing director at Carmignac
