Can challenger Joe Biden expel incumbent President Donald Trump? The financial markets think yes. But they fear the negative consequences of stricter regulation.
In the race for the White House, investors are preparing for turbulent stock market times. Much may still happen before the election in early November, but currently a defeat by US President Donald Trump against his Democratic challenger Joe Biden is coming.
This is why investors are already positioning themselves and adjusting their portfolios accordingly. “Presidential opinion polls dropped,” said stock strategist Phil Orlando of Federated Hermes investment company. “The markets look at this and say, ‘If bids are chosen today, Biden would win.'” A victory for Democrats is unlikely to lead to enthusiasm in the financial markets, as Trump drums for anything that boosts the economy, such as low taxes, while stockbrokers expect say the Democrats are going to regulate harder.
Trump is numbered four months before the election, and his leadership in the corona crisis is being criticized by a growing number of Americans. In a survey published in mid-June, only about 38 percent rated the US president’s appearance positive – this is the smallest agreement since the November congressional investigation into Trump’s violence.
Even after the death of African American George Floyd in a Minneapolis police operation and following nationwide protests against racism and police violence, opponents accuse him of pouring oil on the fire with his rhetoric and have no sense or understanding of the protesters’ concerns. The lead for the US Democrat Biden’s presidential candidate is growing and was recently eight percentage points ahead of the Republican, according to the current Reuters / Ipsos poll.
Play against the dollar
On the stock exchanges, investors set the right price and sell dollar and American shares. Recently, there have been as many investments in the futures market against the US currency as in two years. The victory of the bid and the possible dominance of the Democrats in the House of Representatives and the Senate would probably not be well received in the financial markets.
There, Trump’s investors celebrate Trump’s economy-friendly policies with low taxes and less regulation. Since taking office, the S&P 500 share index has still risen 37 percent despite the Corona crisis.
During Biden, the corporate tax rate is likely to rise to 28 percent, reversing half of the decline decided by Trump and the Republican-led congress at the end of 2017, estimates wealth fund manager Amundi Pioneer Asset Management. That could reduce the S&P 500’s profit by about $ 20 per share, which could drive investors out of US stocks and hurt the dollar, says Amundi’s portfolio manager Paresh Upadhyaya.
Arthur Laffer Junior, portfolio manager at Laffer Tengler Investments, recently closed his dollar positions. He believes Biden’s victory will lead to slower growth and pressure on the US currency. His father had advised Trump on financial issues.
Differences in environmental and climate policy can be expected
The BlackRock Investment Institute recently lowered its ratings for US equities due to concerns over falling tax incentives and uncertainty in elections. “The two parties are as far apart from each other in their policies as never before, so that the results have an impact on the markets,” the analysts from BlackRock conclude. Possible new regulation of a democratic government could mean headwinds for energy and financial stocks, says her colleagues from UBS Global Wealth Management. “Biden would probably join the current international mainstream in terms of increased efforts to avoid greenhouse gases,” says Helaba. “Trump completely refuses this trend.”
The portfolio manager Orlando at Federated Hermes has raised the cash ratio on its investments given the growing number of cases of coronavirus and Trump’s declining investigations. If Trump’s support continues to decline, he plans to reduce dividend-paying positions as higher taxes on dividends and capital gains threaten.
For many, the Fed is still a guarantee of stability
But for many investors, it is not so clear that the stock exchanges are reacting negatively to a larger victory, especially since the US central bank is likely to continue to support the economy. “The Fed’s huge stimulus has probably peaked, but will likely remain very high, especially under a democratic government that can even increase budget deficits,” said strategist John Vail of Nikko Asset Management’s asset manager.
Some investors are also careful to place too much confidence in surveys after many fail to predict Brexit and Trump’s election victory in 2016. As a result, traders in the options market are focusing primarily on an increase in price fluctuations around the elections.