Voters' pocketbooks can matter more than politics in the upcoming election, according to Jeffrey Schulze, investment strategist with ClearBridge, a global investment manager based in New York City.
The world has gone through a recession and deep market drop, but vast amounts of money have been pumped into the economy through stimulus packages that have helped boost pocketbooks, Schulze said.
And although a volatile market is almost a certainty for the near future, the current situation is presenting investing opportunities for those who are willing to take advantage of them, noted Schulze, who moderated a panel discussion Tuesday for Franklin Templeton on the election and the market.
”Currently, small caps are outperforming large caps and the 10-year treasury rate is rising,” Schulze said, adding that this favors Democrats. However, an election that results in a Biden presidency with a divided Congress might by the worst scenario for the markets, because it builds in uncertainty and would probably result in a smaller stimulus package eventually being passed than if the Democrats sweep the election.
“Our portfolio positioning is not dependent on the outcome of the election,” said Julien A. Scholnick, portfolio manager at Western Asset Management Company. “The expectation is that we will get another stimulus package passed with either candidate after the election, but the market is pricing in a Democratic win and anticipating higher taxes and more regulation.”
The world has to assume that under a Biden administration, “the focus would change away from fossil fuels and toward clean energy,” he said. “If there is a surprise Trump re-election, the markets will move higher because tax hikes would be taken off the table. However, a Biden presidency might mean a lessening of tensions with China and that would be a positive for the market overall.”
The fate of the economy and the market also are dependent on whether a vaccine is developed for Covid-19, said Marshall Gordon, senior research analyst for health care at ClearBridge. “By the end of November, the world will have the results of the third tier of testing for a vaccine and emergency use authorization for frontline workers will come first. But there will not be any wider availability of a vaccine until at least the second quarter to 2021. The logistics of distributing a vaccine are substantial and it will be the end of next year at the best before there is widespread use in the United States, Europe and China.”
In other health-care sectors, “the next administration might be able to get bipartisan support on drug pricing,” Gordon said.
The pandemic and resulting closing of businesses has had a drastic impact on state and local governments’ revenues, said Jennifer Johnston, municipal bond senior research analyst at Franklin Templeton.
“We are focused on state and local economies that are dependent on tourism, transportation and trade,” she said. “Many state and local governments were economically strong going into the pandemic, which put them in a good position to weather the pandemic. However, how they survive could come down to how much of stimulus funding they get if this goes on.”