A look at how the 2020 presidential election may affect investments
Wells Fargo Investment Institute tracks most likely election scenarios and their potential impacts on policy and portfolios.
Voters may have two distinct choices in the upcoming U.S. presidential election, but investors are looking at a multitude of ways the election could impact equities, interest rates, and the U.S. dollar.
To help investors plan for what’s to come as much as possible, the Wells Fargo Investment Institute offers their report, “Guide to the 2020 Elections: Potential Impacts on Policy and Portfolios.” Within the report, strategists present forecasts for how the November election result may impact markets, while factoring in ongoing economic themes.
“We anticipate two scenarios for financial markets — single-party control by the Democrats, or reelection for President Donald Trump and split control of Congress — but we consider numerous factors,” said Paul Christopher, head of Global Market Strategy and a key author of the report.
The report looks at the months leading up to and following the elections.
“Ahead of the elections, we urge investors to keep perspective and to align portfolios with the dominant economic trends already in place,” Christopher said.
These trends include a slow economic expansion, the ongoing risks presented by the pandemic, demand for an expanded health care system, persistently low interest rates, and international issues such as U.S.-China competition and the offshoring of U.S. manufacturing.
Although the incumbent President Donald Trump and former Vice President Joe Biden have some similar goals — such as narrowing income gaps, spending programs that likely will widen the federal budget deficit, and an expansion of health care — the candidates differ markedly in other areas.
The report examines proposed policies from each candidate and the potential implications for investors. It also estimates potential policy impacts on different financial markets and equity market sectors, noting that the sectors most likely to see policy impacts are energy, financials, health care, and those influenced most directly by digital technology innovation.
The report comes to three basic takeaways for investors — some actions to consider before year-end 2020, and another to think about as the new year develops.
First, it’s important to remember that geopolitical and global economic trends are likely strong enough to influence policy, no matter who wins. The Wells Fargo Investment Institute’s current guidance aligns with those trends, so the report indicates a preference for following that current guidance.
Second, because of the possibility of tax law changes next year, investors may want to consult with tax and estate counselors prior to year-end 2020 to consider potential changes.
But when thinking about policy changes, the report notes that the elections are only the beginning — not the end — of potential policy changes. Investors should have a clearer picture of policy directions in the early part of 2021.
“The differences between the two candidates will have more perceptibly different market impacts once the new Congress is seated,” Christopher said. “So we are also looking ahead at how the election outcomes may continue to impact investments in 2021.”
Forecasts are not guaranteed and based on certain assumptions and on views of market and economic conditions which are subject to change.
All investing involves risks including the possible loss of principal.
Equity securities are subject to market risk which means their value may fluctuate in response to general economic and market conditions and the perception of individual issuers. Investments in equity securities are generally more volatile than other types of securities.
Sector investing can be more volatile than investments that are broadly diversified over numerous sectors of the economy and will increase a portfolio’s vulnerability to any single economic, political, or regulatory development affecting the sector. This can result in greater price volatility. The Energy sector may be adversely affected by changes in worldwide energy prices, exploration, production spending, government regulation, and changes in exchange rates, depletion of natural resources, and risks that arise from extreme weather conditions. Investing in the Financial services companies will subject an investment to adverse economic or regulatory occurrences affecting the sector. Some of the risks associated with investment in the Health Care sector include competition on branded products, sales erosion due to cheaper alternatives, research and development risk, government regulations and government approval of products anticipated to enter the market. Risks associated with the Technology sector include increased competition from domestic and international companies, unexpected changes in demand, regulatory actions, technical problems with key products, and the departure of key members of management. Technology and Internet-related stocks, especially smaller, less-seasoned companies, tend to be more volatile than the overall market.
Wells Fargo and its affiliates are not legal or tax advisors. Be sure to consult your own legal or tax advisor before taking any action that may involve tax consequences. Tax laws or regulations are subject to change at any time and can have a substantial impact on individual situations.
Wells Fargo Investment Institute, Inc., is a registered investment adviser and wholly-owned subsidiary of Wells Fargo Bank, N.A., a bank affiliate of Wells Fargo & Company.
The information in this report is for general information purposes only and is not intended to predict or guarantee the future performance of any individual security, market sector or the markets generally.
The information contained herein constitutes general information and is not directed to, designed for, or individually tailored to, any particular investor or potential investor. This report is not intended to be a client-specific suitability analysis or recommendation, an offer to participate in any investment, or a recommendation to buy, hold or sell securities. Do not use this report as the sole basis for investment decisions. Do not select an asset class or investment product based on performance alone. Consider all relevant information, including your existing portfolio, investment objectives, risk tolerance, liquidity needs and investment time horizon.