While no one can say with certainly which way the market will go following the election, here are some thoughts.
With Trump, we could see:
- Lower taxes
- Less fiscal stimulus
- A continued, confrontational approach to US-China relations, which has unsettled markets in the past.
With Biden, we’re likely to see the opposite:
- More stimulus
- Fewer international political confrontations
- But also higher taxes on corporations, capital gains and high-earners’ income.
- Higher corporate taxes could also include share buyback disincentives.
- Both higher tax rates and buyback disincentives would be detrimental to the stock market.
- Biden would likely roll back many of Trump’s executive orders and push for more sustainable energy.
- Sectors that could come under heightened scrutiny under Biden are large tech companies, healthcare, and financial services. Since five companies (Facebook, Amazon, Apple, Netflix, and Google) account for 20% of the US stock market, any further scrutiny of big tech will likely have a significant impact on the market.
Regardless of Who Wins:
Interest rates are an important driver of the market to follow. Higher interest rates would make stocks and especially tech companies command lower prices.
Bottom Line:
One thing is for sure — expect short-term stock market volatility as the election season heats up. However, in the long term, economic fundamentals are what drive the stock market.