November 2020 promises to bring us closer to the end of a year unlike any other. From the ongoing nationwide impacts of dealing with coronavirus disruptions to the upcoming Presidential election, there is much to keep track of these days.
It’s difficult to write about the effects of the upcoming election on the economy without picking sides. But for this article, I’d like to emphasize that I’m not picking any sides, but rather, I’m choosing to talk about how we think about preparing portfolios for the potential upcoming scenarios.
The American Economy saw a near complete shutdown due to Coronavirus. Several states—California and New York, in particular—took drastic measures to stop this virus at the expense of a 100% economic shutdown, outside of a few essential industries.
Despite this, we continue to see growth in this economy, as well as growth in the Equity Markets. Aside from Real Estate and Mortgage Bonds, the Bond Markets have recovered. However, the drop in these two sectors was enough to keep most Bond Portfolios below where they were on March 1st.
Value-Driven Portfolios, mostly using dividends, still are lagging behind as they did in 2018, 2019 and now 2020.
So who is the winner? GROWTH. The subset of this is Technology, Science, Biotech, Health and Consumer Staples (e.g., Costco and Walmart). Let us sprinkle a few winners too, such as Visa and Mastercard, since we are all buying so much online now. And 2021 won’t be all that different.
On to the election: Let’s run a few scenarios to help you understand the influencing factors for how we’re positioning portfolios.
Scenario A: Trump wins decisively, and the Senate remains the same.
There will be a short-term “V” down, but the market should recover quickly. 2021 will be another year of growth.
Scenario B: Trump wins decisively with the Senate changing to Blue.
2021 will continue to be a growth year, but expect the Senate not to pass virtually any Trump-driven legislation. What’s more, expect pressure on the banking industry to break up the big banks and curtail natural gas and oil production.
Trump will most probably use his Veto powers as much as any President in history.
Scenario C: Biden wins decisively with the Senate remaining Red.
2021 will continue to be a growth year. Biden will work to increase regulations through Executive Powers just as Trump did to reduce the same regulations.
The Markets like split government as a system of checks and balances. One-party rule is generally bad for business because it stifles fresh ideas and doesn’t allow for enough debate. Because the Markets like this system of checks and balances, so don’t expect much legislation.
Scenario D: Neither candidate wins decisively.
Expect a short-term uh-oh. Markets will hate this. Expect a “V” downward until we have a President. Lawyers on both sides will be the winners here, not the American people.
Scenario E: Lastly, Biden wins, and the Senate turns Blue.
All the power will be in one party and Markets do not like this. Expect a good 2021 as we are experiencing momentum, and many feel that the large Blue states will open almost immediately should this be the outcome.
There will be pressure on the big banks to break up, downward pressure on the energy sector, pressure to pass new tax breaks for electrical energy and outlaw gas-powered products, massive climate-related legislation and regulations, and more aggression by China to test our resilience.
The good news: No matter what happens, we’re positioning many portfolios for Growth in 2021. Momentum is in our favor.
Many investors will remain glued to the election race, but we’re here to help ensure that nothing falls through the cracks—and that the circumstances and opportunities unique to 2020 appropriately play into your long-term financial life plan.
All my best,
Elliot Kallen
Wealth Manager, Registered principal
