We must not “overestimate the importance for the markets of the choice of the next President of the United States”

Donald Trump and Joe Biden during the debate on September 29.

DIt is difficult, as an investor, to resist the temptation to ask the question of the potential impact of the US presidential election of November 3 on the markets. Analyzing every four years, around October, the respective economic programs of two candidates is a well-established ritual in the trading rooms, in order to be able to position themselves quickly after the elections according to the winner chosen by the ballot box. It could be all the more important this time because, economically, the programs of the two candidates are ideologically opposed.

Donald Trump proposes an increased reduction in the tax burden, which would benefit some sectors much more than others, while Joe Biden supports an acceleration of spending, itself targeted sectorally, financed by an increase in the tax pressure.

Trump thus supports the national oil sector, in particular the shale gas industry, while Joe Biden announces a marked turn towards the energy transition if he is elected.

More generally, one could consider that Joe Biden wishes the revenge of “Main Street” on Wall Street, or at the very least a rebalancing of the division of the added value in favor of the wages, which naturally makes him, perhaps not. a bogeyman but still a risk candidate for the stock market (risk of collapse, Trump tells us, of course).

Vain exercise

However, experience teaches us that this evaluation exercise is generally rather futile. To be sure, every presidential election is important to citizens, and this one especially in an extremely divided America. But the stock market outlook that follows them is in reality relatively insensitive. For example, under the Obama era and the Trump era, the performance of the S&P 500 equity index was similar (between 12% and 14% annualized), as were those of the dollar (between -0 , 7% and + 2.3% for a European investor).

Economically, the programs of the two candidates are ideologically opposed

The top three performing sectors during the Obama years have been Consumer Discretionary, Technology and Healthcare, while over the past four years the winning trio has been… Technology, Consumer Discretionary and Healthcare. And during the two terms of office, however very polarized in their economic policies, the same sectors, banks and energy, were the big losers. Finally, it should be remembered, interest rates have continued to decline for three decades.

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Much more room would be needed to examine why, with all their efforts, political leaders actually have little control over major economic trends, and their translation into financial markets. To do this, it would be necessary to take the measure of the role of central banks, which are still relatively independent, of the autonomy of the large groups, and of the primacy of the Washington consensus.

What matters for the moment is at least not to overestimate the importance for the markets of the choice of the next president of the United States.

Random impact

There still has to be a choice. The indeed new dimension of the November election is that it is more and more likely that this choice will not emerge clearly the day after the poll, nor in the following weeks. American institutions could find themselves in a situation of temporary blockage by appeals and challenges of all kinds, and it is the prospect of this unknown, that the sudden election of a new judge to the Supreme Court enlivens, which makes even more random impact of these elections.

All the more reason not to lose sleep over the outcome of the ballot. For the performance of its stock market investments, it is much more important to determine the sectors and companies which, depending on their own merits or on deep cyclical or structural changes, will be able to strengthen their profitability in the coming years.


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