The first thing to consider is history. Looking back at elections over the years, the stock market has accurately predicted the winner every time but twice. If the market is up 90 days before the election, the incumbent has gone on to win every time but two times. If this holds true in a pandemic year, it is likely the current administration will stay in place. Over the last ninety days the market has gained over 7%.
Another major indicator during an election year is the underlying technical indicators. There is not a lot of unrest here either. Markets are not panicking and things are fairly even keel considering all the uncertainty that exists. This also bodes well for those currently in office.
There are many things that could change if the current administration is voted out of office. From a financial perspective, here is how it will impact all investors, including you. It has to do with taxes. The old adage that “tax law affects behavior” could not be more applicable than with this election. The Biden administration openly proclaims they will raise corporate taxes and eliminate the capital gains tax. Corporations are not simply going to eat tax hikes. They are going to pass them along to all of us as consumers in the form of higher costs for all kinds of goods. It is impossible to tax your way to prosperity. It never has worked and it never will. Whenever you tax something, there becomes less of it. The capital gains tax, which is typically taxes paid on long-term investments, is now 20%. If Biden wins, capital gains would be replaced with the ordinary income tax. Instead of being taxed at 20% for long term investments people are going to be taxed at their ordinary income tax rate, which could double their current tax obligation. Everyone, businesses included, are going to make fewer long-term investments if they know that when they decide to sell, they are going to pay ordinary income tax rates. Not good for economic growth. “Tax law will affect behavior”. If you tax growth, there will be less growth. The smart investors could scramble to get out of investments with long term tax implications before the end of 2020 to pay taxes at the current long term capital gains rate. This could trigger a huge sell-off which could impact your investment.
As voters we should consider policy over politics or personalities. The policies will be around long after the personality is gone. This is one of the most critical elections our country has ever experienced. We are voting for the policies that will affect our families and grandchildren long after the politicians are gone. It is wonderful to live in a country where we have the opportunity to elect those we want to lead us. This election will greatly affect all of us as investors. It is very comforting to know that regardless of the outcome, we have money managers that can navigate in the best possible situation regardless of which party is in power. Some may even have the ability to make money in any kind of market.
Be sure to go vote and God bless America!!