By 2X Wealth Group

Markets hate uncertainty, and we can’t remember an election with such potentially disparate outcomes. As we speak, the presidential race looks closer than ever, and the Senate majority is in question. Meanwhile, the pandemic rages on, and the President and Congress can’t agree on a stimulus plan. It’s no surprise that stock market volatility has risen.

Tragically, the pandemic has magnified the wealth gap in our country. While over 200,000 people in the U.S. have lost their lives and millions more their jobs and businesses, the DJIA, S&P 500, and NASDAQ have hit new highs. Affluent Americans with investments in financial assets have seen increases in net worth, while many of those who depend on a paycheck are struggling.

The stark differences between Democratic and Republican plans for the future have greatly increased engagement in the election process.

Election scenarios and potential outcomes

We assess two possible election outcomes and their consequences:

1. A blue wave with sufficient Senate Democrats to enact Biden policies

Policy direction

• Large government stimulus and infrastructure programs
• Increase in minimum wage nationwide
• Increased emphasis on green energy
• Enhancement of Obamacare
• Improved international relations
• Increase in top income tax bracket from 37% to 39.6%
• Increase in capital gains taxes for incomes over $1 million
• Increase in corporate tax levels

Practical implications

A Biden administration would likely push stimulus immediately and delay corporate tax increases to support economic recovery. Government stimulus and infrastructure spending, combined with more stable international relationships, could partially offset the negative impact of higher taxes.

Sectors that may benefit include:

• Green energy
• Infrastructure
• Materials
• Industrial companies with high international exposure

Technology sits in the middle—potentially negatively impacted by higher taxes but possibly benefiting from increased overseas demand.

2. Republicans maintain Senate majority regardless of presidency

Policy direction

• Smaller stimulus and infrastructure package
• Minimum wage decisions left to individual states
• Slower adoption of clean energy
• Repeal of Obamacare
• Continued pushback against China
• No increase in individual tax brackets
• No increase (or possible reduction) in capital gains taxes
• No increase in corporate tax rates

Practical implications

Realistically, the Senate controls the “pocketbook.” In this scenario, differences between a Trump and Biden presidency would likely center on tariffs and regulatory policy (such as fracking on public lands).

With a Republican Senate, tax policy would remain largely unchanged—supportive for corporations and equities. However, reduced government stimulus could slow the economic recovery.

Sectors that may benefit include:

• Defense
• Technology
• Biotech
• Oil and gas

The 2X Wealth Group “inevitables”

In the spirit of Byron Wien, vice chairman of Blackstone, who is known for his annual list of “10 surprises,” we offer our own list of 10 inevitables regardless of election outcomes or Senate control.

• The U.S. must address inequality and improve outcomes for lower-income citizens, or risk social unrest and weaker consumer-driven growth
• Affordable healthcare must become more accessible as costs continue to rise
• U.S. infrastructure requires significant investment and modernization
• Rising U.S. debt as a percentage of GDP and ongoing monetary expansion pressure the dollar
• The dollar may eventually be challenged as the world’s reserve currency, potentially by a multi-government digital currency
• Inflation is likely to rise as the economy recovers, supported by Federal Reserve policy allowing inflation to run above 2%
• Marijuana legalization is a matter of when, not if, and may contribute tax revenue
• China will continue to challenge the U.S. as a leading global economic power
• Emerging markets may benefit from favorable demographics and a weaker dollar

Like Wien’s “surprises,” these inevitables are viewed as having a higher probability than many investors assume.

While election uncertainty may cause near-term volatility, markets historically tend to stabilize once outcomes are known—regardless of which party wins.

These tricky markets may ultimately lead to future opportunity.

Happy Halloween.