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MARKET INSIGHTS
October 28, 2020
Tricky Times
Markets hate uncertainty, and we can’t remember an election with such potential disparate outcomes. As we speak, the presidential race looks closer than ever, and the Senate majority is in question. Meanwhile the pandemic rages, and the President and Congress can’t agree on a stimulus plan. It’s no surprise 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 the NASDAQ markets hit new highs. Affluent Americans who have investments in financial assets saw increases in their net worth while many of those who depend on a paycheck are struggling.  

The stark differences between Democrat and Republican plans for the future have greatly increased engagement in the election process. We assess two possible election outcomes and their consequences:

A blue wave with sufficient Senate democrats to enact Biden policies
  • 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 those with incomes over $1mm
  • Increase in corporate tax levels
Practical implications
A Biden administration is likely to push stimulus immediately and delay corporate tax increases to continue to promote economic recovery. Government stimulus programs and infrastructure spending combined with more stable international relationships will likely partially offset the negative impact of tax hikes. Sectors likely to benefit include green energy, infrastructure, materials and industrial companies with high international exports. Tech is caught in the middle – more hurt by higher taxes but potentially benefitting from increased overseas sales.

The Republicans keep the Senate majority regardless of who is President:
  • Smaller stimulus package and infrastructure plan
  • States will be allowed to set minimum wages individually
  • Slower adoption of clean energy
  • Repeal of Obamacare
  • Continued pushback against China
  • No increase in individual tax brackets
  • No increase in the capital gains rate and a possible reduction
  • No increase in corporate tax levels
Practical implications
Realistically, the Senate controls the pocketbook. In this scenario, the difference we see between a Trump and Biden presidency is related to tariffs and regulations (such as fracking on public lands). With a Republican Senate, tax policy will remain status quo, a relative positive for corporations and the stock market. Less government stimulus risks slowing the anticipated economic rebound. Sectors likely to benefit include defense, technology, biotech, and oil and gas.  

The 2X Wealth Group Inevitables:
In the spirit of Byron Wien, the vice chairman of Blackstone who is famous for his list of 10 surprises each year, we came up with our own list of 10 inevitables regardless of who wins the presidential election or which party controls the Senate.
  • As a country, the U.S. needs to address those who have suffered the most during the pandemic.
  • The economic status of lower income citizens needs to improve, or we risk increased social unrest and the inability to grow our consumer spending-based economy.
  • With healthcare costs skyrocketing in the last decade, affordable healthcare in the U.S. must happen.
  • The crumbling infrastructure in the U.S. must be fixed.
  • U.S. debt rising as a percentage of GDP and the concomitant printing of U.S. dollars destabilizes our currency and pressures the dollar’s value.
  • The dollar will eventually be replaced as a reserve currency, possibly by a new multi-government cryptocurrency.
  • The recovery in the U.S. will lead to increased inflation this time, partly due to changes in Federal Reserve policy allowing inflation to run hot (above 2%).
  • Legalization of marijuana is a matter of when, not if, and may help fund some of our borrowings.  
  • China will challenge the U.S. as the world’s most important economy.
  • Emerging markets have much to gain from positive population demographics and a weaker dollar.
Like Wein’s surprises, we believe our inevitables have more than a 50% chance of occurring while the average investor might view them as having a 1 in 3 chance of playing out.   

Although election disruptions may cause a near term stock market sell off, it is not all bad. Historically, markets improve once elections are decided, regardless of which party wins. So, these tricky markets suggest a future treat.  

Happy Halloween!

The material included herein is confidential and for the sole use of the recipient. It is not to be reproduced or distributed to others without the Firm’s express written consent. This material is being provided for informational purposes, and is not intended to be a formal research report, a general guide to investing, or as a source of any specific investment recommendations and makes no implied or express recommendations concerning the manner in which any accounts should be handled. Any opinions expressed in this material are only current opinions and while the information contained is believed to be reliable there is no representation that it is accurate or complete and it should not be relied upon as such. Investing involves risk, including loss of principal, and no assurance can be given that a specific investment objective will be achieved.  

The Firm accepts no liability for loss arising from the use of this material. However, Federal and state securities laws impose liabilities under certain circumstances on persons who act in good faith and nothing herein shall constitute a waiver or other limitation of any rights that an investor may have under Federal or state securities laws.


2x Wealth Group is a team at Ingalls & Snyder, LLC.,1325 Avenue of the Americas, New York, NY 10019-6066 |
(212) 269-7757

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The views and opinions expressed in the posts on this page  are those of the author and do not necessarily reflect the position or views of Ingalls & Snyder, LLC.  Certain content on this page were originally  posted in a personal blog maintained and operated independently by the author prior to joining Ingalls & Snyder, LLC. 

The content on this page are for informational purposes, and is not intended to be a formal research report, a general guide to investing, or as a source of any specific investment recommendations and makes no implied or express recommendations concerning the manner in which any accounts should be handled. Any opinions expressed in this material are only current opinions and while the information contained is believed to be reliable there is no representation that it is accurate or complete and it should not be relied upon as such.  Investing involves risk, including loss of principal, and no assurance can be given that a specific investment objective will be achieved.