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12.10.20

The US Election

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The US Presidential election takes place on Tuesday November 3rd. Joe Biden retains a significant poll lead and our analysis of the betting odds shows Biden increasing his probability of victory as the election date approaches.

In the first of a three-part Jarrovian note we map out 3 scenarios and discuss the likely impact on markets.

The 3 Scenarios are

  • Biden wins
  • Trump wins – but loses Senate
  • Disputed election result

Biden wins – Given where polls currently are, this is the most likely of our 3 scenarios

The first point to make here, is that a Biden victory will almost certainly mean Democratic control of the House and the Senate, pushing the centre of political gravity firmly to the left. Biden is an old school Democrat centrist, in the mould of Bill Clinton. But the party has moved firmly to the left, with the ‘progressive’ wing in ascendancy. A Democratic Congress will be to the left of the President and that could well shape both his policies and his key appointments – watch out who he appoints as Treasury Secretary and see what role he offers to the likes of Elizabeth Warren. 

Biden has an extensive platform, certainly more radical than his previous political positions as he faces the difficult challenge of keeping the progressive wing on board. One factor that sank Hilary Clinton in 2016 was her failure to get the Bernie Sanders supporters to come out and vote for her. Biden has moved his platform to the left to keep them on board this time.

Repealing the Trump Tax Cuts seems a certainty. Back in 2017, Trump slashed corporate rates from 35% to 21%. Biden has called for raising the corporate rate to 28%. This will cut earnings significantly as a one-off impact but will be offset by a larger fiscal stimulus package passed by Congress and better trade relations with countries in Europe as well as with China. Wealth taxes sound simple in principle but are very difficult to enforce and may be deemed unconstitutional by the conservative dominated Supreme Court. But personal taxes on the top 1% are certain to rise.

Biden has vowed to expand the Affordable Care Act, the health care overhaul that former President Barack Obama signed into law in 2010. Lower drug prices, at least when it comes to Medicare, are a clear priority for the Democratic nominee. Medicare is the federal health care insurance program for people aged 65 and older, and for those with certain disabilities.

“The Biden plan will repeal the existing law explicitly barring Medicare from negotiating lower prices with drug corporations,” the campaign site reads. This would be a negative sign for healthcare stocks, even more so if someone like Elizabeth Warren was in charge. Healthcare and Biotech stocks are vulnerable as previous comments by Democratic candidates testify.

Back in 2015, candidate Clinton tweeted “Price gouging like this in the specialty drug market is outrageous,” with regard to a life-saving drug that had surged from $13.50 a pill to $750 a pill overnight. She vowed to lay out a plan to combat it. In terms of biotech, iShares Nasdaq Biotechnology ETF (ticker: IBB), the largest biotech ETF on the market, fell almost 5% on Sept. 21 on the day of that tweet. The day after Clinton was defeated, IBB rose 9%, sparking a strong rally in biotech.

Although Biden’s plans in health care may be a bit more nuanced, drug companies are certainly sensitive to politics. That said, health care is a diverse sector, and Biden’s policies may benefit other corners of that sector. Biden will be under pressure to offer the progressive wing some ‘red meat’ in terms of policy and healthcare reform might be it.

Biden’s platform has a focus on infrastructure spending and investing in sustainability and clean energy. This ‘green deal’ is wildly popular with Democrat activists. We could see an infrastructure package totalling over $1 trillion which would benefit the industrial and material sectors that produce heavy equipment or produce materials for roads and bridges and Democrat control of Congress would guarantee its passing – so more Treasury issuance.

Biden would also drive further ESG trends around regulation and support for renewable energy. Less happy would be the Oil and Gas fracking industry which would face much tougher environmental regulations. The impact from Biden on Tech is less clear. Trump hates the perceived politics of Big Tech, (it is an article of faith for conservatives that social media platforms are biased against them) but Democrats hate their practices. The need for Increased regulation, control of ‘fake news’ context, tax avoidance, lack of competition (Facebook/Google/Microsoft/Amazon) and the impact on ‘Main Street’ (Amazon again) would all be areas that might well see a Democrat Congress take action.

Need to know more? If you have a question or would like more information please contact me or a member of our team at hello@jarrovian.co.uk

Chris Salacinski
Director & Financial Planner

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