When you look at past election cycles, when the main parties are running fairly close – by which we mean no more than three percentage points between them – we usually see markets flatten out three to four months ahead of the polling date.
The podcast concludes with an assessment of risk associated with November’s presidential election. As Barnard notes; “When you look at past election cycles, when the main parties are running fairly close – by which we mean no more than three percentage points between them – we usually see markets flatten out three to four months ahead of the polling date. They then rally once the result is known, regardless of who wins.”
The big question hangs over future US fiscal policy. What will happen to government spending and to taxation? “At this point, at the end of 2019, Trump has hinted strongly at tax cuts for the middle classes of 15 percentage points, which would result in a fiscal boost after the election if enacted,” reflects Slok
“The Democrats are opting for an increase to the US minimum wage, which would also be good for consumption, They’re also thinking about forgiving student debt, which is also relatively positive. As the stock of student loans outstanding is US$1.5trn, if that debt load is at least written down in a significant way it would certainly lift consumption.”
Slok notes that some Democratic candidates also talk of corporate tax hikes, which would be negative for corporate spending, but whatever the outcome in November there is a strong prospect of a post-election boost to government spending. “So what happens to corporate taxes – whether they go up again and if so by how much, along with what happens to capital gains taxes, labour protection and environmental protection – all make it difficult to quantify the exact implications.
“But also it’s not clear to us that there are any scenarios that would involve the stock market falling a lot, or conversely in which it would go up a lot.
“The final point – and a very important one this year – is that we’ve also been thinking in terms of what it means for monetary policy and whether the Fed in that kind of environment would be back raising rates again if there is a fiscal boost. Or whether they will maintain the present tone in which rates stay low for a very long time.”
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