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Investment Institute

Guide to the 2020 Elections

Potential impacts on policy and portfolios

  • Video: How can the November elections affect portfolios?
  • Most likely election outcomes
  • Comparing policies: Likely to unlikely outcomes
  • Investment implications
  • Preparation and planning

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Video: How can the November elections affect portfolios?

What do investors need to know before—and beyond—November 3?

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Guide to the 2020 Elections

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Presenter: Paul Christopher, CFA, Head of Global Market Strategy, Wells Fargo Investment Institute

How can the November elections affect portfolios? This is a question on many people’s minds.

Certainly elections have economic and investment implications, but we think it’s important to keep perspective amid the political rhetoric. Here are points to consider:

Title graphic: Both presidential candidates are still positioned for a win

First, both presidential candidates are still positioned for a win. Polls suggest a substantial lead for former Vice President Biden, but President Trump could still regain that advantage.

Title graphic: The party that wins the White House is likely to control the Senate

Second, we believe that the party that wins the White House is likely to control the Senate. We anticipate that the Democrats will keep the leadership in the House of Representatives but also think it likely that the Senate will follow the presidential race. If Biden holds his lead, single-party government is very likely to return in 2021. But if Trump prevails, Congress could have split leadership.

Title graphic: Single-party government can coincide with a favorable investment environment

Third, single-party government can coincide with a favorable investment environment. Fully one-half of the presidential elections since 1944 have delivered single-party government. But, unified government has typically coincided with S&P 500 Index price returns slightly above the average annual price gain over the last 75 years.

Chart on screen: S&P 500 Index return** 1945-2019*

S&P 500 average return – all years: 9.67%

Average return during unified government: 10.63%

Sources: Bloomberg, Wells Fargo Investment Institute, August 14, 2020. *The analysis excludes the years 2001-2002, because Sen Jeffords switched parties in mid-2001. **Price returns only, excluding dividends. Unified government: President and leaders of both congressional chambers are of the same party. Unified Congress: One party leads both chambers of Congress; president is of the other party. Split Congress: Different parties lead the chambers of Congress.

Title graphic: The pandemic and the slow global economic recovery will be the primary focus of the two party platforms

Next, we believe the pandemic and the slow global economic recovery will be the primary focus of the two party platforms, and that some investment opportunities may emerge from these plans. Policy proposals for expanded federal spending on health care and infrastructure, and on encouraging a U.S. manufacturing renewal are supported by both Republicans and Democrats. Our current investment preferences already are consistent with these trends, so ahead of the election, we favor aligning portfolios with our preferred markets and sectors.

Title graphic: Elections are only the beginning—not the end—of how the investment landscape may change

Finally, elections are only the beginning—not the end—of how the investment landscape may change. The parties have clear differences, and the balance of power, the legislative agenda, and key appointments that emerge between now and March 2021 are still unknown. So between now and March, we favor taking that time to prepare for the investment opportunities that may present themselves after the elections.

But we don’t want to wait on every idea. Some of the tax strategies available today may end in 2021, so we think now is the time to review tax planning strategies—particularly in light of possible changes to estate planning rules.

For more insight about the issues that are most important to investors, the most likely election scenarios, and what those scenarios may mean for investor portfolios—both immediate and long-term—See our Wells Fargo Investment Institute special report:

Guide to the 2020 Elections

Title graphic: For more information download our special report, coming September 10

General disclosures

Wells Fargo Investment Institute, Inc. is not a legal or tax advisor.

The opinions expressed reflect the judgment of the speaker as of the recording date and are subject to change without notice. The material has been prepared or is distributed solely for information purposes and is not a solicitation or an offer to buy any security or instrument or to participate in any trading strategy. Past performance is no guarantee of future results. Additional information is available upon request.

Wells Fargo Investment Institute, Inc. is a registered investment adviser and wholly owned subsidiary of Wells Fargo Bank, N.A., a bank affiliate of Wells Fargo & Company.

Wells Fargo Advisors is registered with the U.S. Securities and Exchange Commission and the Financial Industry Regulatory Authority, but is not licensed or registered with any financial services regulatory authority outside of the U.S. Non-U.S. residents who maintain U.S.-based financial services account(s) with Wells Fargo Advisors may not be afforded certain protections conferred by legislation and regulations in their country of residence in respect of any investments, investment transactions or communications made with Wells Fargo Advisors.

Wells Fargo Advisors is a trade name used by Wells Fargo Clearing Services, LLC and Wells Fargo Advisors Financial Network, LLC, Members SIPC, separate registered broker-dealers and non-bank affiliates of Wells Fargo & Company.

© 2020 Wells Fargo Investment Institute. All rights reserved. CAR-0820-03918

What to watch

Most likely election outcomes

Because we expect control of the Senate to follow the results of the presidential race, we anticipate two scenarios for financial markets—single-party control by the Democrats, or re-election for President Trump and split control of Congress.

Click the tabs below to learn more.

  • Presidency
  • Congress
  • Presidency
  • Congress

Biden’s lead is large, but Trump could close the gap

Biden opened a sizable summer lead in the polls, but we believe it’s too early to count President Trump out.1

  1. Presidential elections in 1988, 2000, and 2016 show that big leads can evaporate in the weeks before an election.2
  2. Biden’s narrow leads in several of the key battleground state polls (including Arizona, Michigan, Pennsylvania, and Wisconsin) and in states that lean Republican (e.g., Texas, Georgia, and others) add to Biden’s vulnerability.
  3. Trump’s assertive campaign style has yet to test the Biden campaign.
  4. The severe recession may give an overly pessimistic view of the president’s popularity if new fiscal policy support or good news on a COVID-19 vaccine or the economy appear.
  5. Biden’s critical—but delicate—shift to a more progressive Democratic platform may alienate moderates inside and outside the party.
1. RealClearPolitics, 7.1% average over August 26, 2020 to September 1, 2020 period.
2. “It’s Way Too Soon to Count Trump Out,” Nate Silver, FiveThirtyEight, August 12, 2020

High turnout correlates with one-party government

Historically, higher voter turnout has tended to result in one party taking the White House, the Senate, and the House. Voter turnout will be a deciding factor this year as well, and it will be especially hard to predict.

Voter turnout above 56 percent often results in one party leadership of the White House, Senate, and House of Representatives.

Source: Dr. Michael McDonald, University of Florida, United States Election Project

The House of Representatives seems safely Democratic.

The required net gain of 18 seats for a GOP majority appears out of reach.1

 

1. The Cook Report, “House Race Ratings, as of August 21, 2020,” September 1, 2020

We believe the Senate will go the way of the presidential election.

A recent Cook Report2 estimates that 1) six of the 23 Republican Senate seats up for election are toss-ups and 1 leans towards the Democrats; and 2) no Democratic Senate seats are toss-ups and just one leans towards the Republican candidate.

 

2. The Cook Political Report, “Senate Race Ratings, as of August 17, 2020,” September 1, 2020.
Policy proposals

Comparing policies: Likely to unlikely outcomes

A side-by-side comparison of Biden and Trump policy positions.

Likely to be implemented

Election 2020 is coalescing around five priority policy categories. The information below contrasts the candidates’ proposals within those five categories.

Explore policy positions by clicking on each tab below.

  • Tax and regulatory
  • Fiscal and monetary
  • Foreign economic policy
  • Health care and immigration
  • Energy
  • Tax and regulatory
  • Fiscal and monetary
  • Foreign economic policy
  • Health care and immigration
  • Energy

Biden

Likely under a single-party government by the Democrats

  • Raise the corporate tax rate from 21%to 28%.
  • Create a 15% rate on minimum book value for firms with net income of $100 million or more, and double the rate on foreign income to 21%.
  • Top individual rate to pre-2018 level, new payroll taxes, higher estate taxes.
  • Return regulations to Obama-era levels.

 

Source: Wells Fargo Investment Institute, September 1, 2020

Trump

Likely under a split government headed by Trump

  • Cuts to the payroll tax and capital gains tax.
  • Make expiring 2017 tax cuts permanent.
  • Continue to roll back regulation.

Biden

Likely under a single-party government by the Democrats

  • A four-year, $700-billion “Made in All of America” plan for federal procurement of U.S. manufactured goods.
  • Increased spending on infrastructure and health care.
  • Government transfers to narrow income inequalities.
  • Low Federal Reserve policy interest rates.
  • Annual budget deficits probably over $1 trillion.

 

Source: Wells Fargo Investment Institute, September 1, 2020

Trump

Likely under a split government headed by Trump

  • Support domestic manufacturing via tariffs, other trade restrictions.
  • Increased infrastructure and health care spending.
  • Limited direct income payments to reduce income inequality.
  • Low Federal Reserve policy interest rates.
  • Annual budget deficits probably over $1 trillion.

Biden

Likely under a single-party government by the Democrats

  • Multilateral pressure on China.
  • Reduce tariffs on allied countries.
  • Revive U.S. participation in multilateral and nongovernmental organizations (for example, Trans-Pacific Partnership for trade, United Nations agencies)
  • “Made in All of America” plan to encourage overseas manufacturing to return to the U.S.

 

Source: Wells Fargo Investment Institute, September 1, 2020

Trump

Likely under a split government headed by Trump

  • Continue pressure on China via tariffs and trade, visa, licensing restrictions.
  • Continue efforts to re-shore manufacturing jobs, using bilateral negotiations with tariffs for leverage.
  • Remain critical of multilateral agreements and non-governmental organizations.

Biden

Likely under a single-party government by the Democrats

  • Public option for Affordable Care Act (ACA).
  • Designate Medicare to negotiate lower drug prices.
  • Expand Medicare and Medicaid access.
  • Control drug price inflation, especially for specialty drugs
  • Expand immigration and ease the citizenship process.

 

Source: Wells Fargo Investment Institute, September 1, 2020

Trump

Likely under a split government headed by Trump

  • Encourage private-sector measures to expand health care.
  • Base some Medicare drug prices on comparable foreign costs.
  • Tighter immigration policies.

Biden

Likely under a single-party government by the Democrats

  • Rejoin the Paris Climate Agreement.
  • Policies to target net zero carbon emissions in power generation.
  • Support for renewable energy generation, electric vehicles and other clean-energy spending.

 

Source: Wells Fargo Investment Institute, September 1, 2020

Trump

Likely under a split government headed by Trump

  • Maintain a favorable regulatory environment for fracking, pipelines, energy exports, and, more generally, fossil fuel generation.

Proposals that could go either way

Biden

  • Tax on unrealized capital gains at death.
  • Tax on digital transactions.
  • Monetary policy implicitly focusing on racial gaps in jobs, wages and wealth.

 

Source: Wells Fargo Investment Institute, September 1, 2020

Trump

  • Further Tax Cuts and Jobs Act tax cuts.
  • Affordable Care Act repeal through an executive mandate.
  • Work requirements and other limitations on Medicaid eligibility.
  • Convert Medicaid spending to block grants to help cap spending growth rates.
  • Reduce regulations on air and water pollution.

Unlikely to become law

Biden

  • Medicare for All
  • Green New Deal

 

Source: Wells Fargo Investment Institute, September 1, 2020

Trump

  • Repeal the Affordable Care Act

See more elections coverage at Elections 2020: Insights and Impacts

View the site
Our current preferences

Investment implications

Our current investment preferences acknowledge several economic and geopolitical themes that appear set to dominate the investment environment during this presidential cycle. Our most prominent preferences include:

Wall Street sign

Choosing U.S. markets over international

U.S. financial markets over international markets, because the U.S. has more and better resources for confronting the pandemic and its negative economic consequences.

Oil derrick

Choosing US large- and mid-cap equities (plus preferred sectors)

U.S. large- and mid-cap equities, because of their efficiency and greater focus than U.S. small caps and most international equity markets in digital technology and health care, two themes that are accelerating in importance. Thus, our preferred equity sectors include the Health Care and technology-oriented sectors (Information Technology, Communication Services, and Consumer Discretionary).

U.S. Federal Reserve symbol

Choosing high-yield and investment-grade corporates, and preferred securities

High-yield and investment-grade corporates, and preferred securities, which should see positive returns as the gradual economic recovery continues and Federal Reserve (Fed) policies extend low interest rates into the coming years.

In conclusion

Preparation and planning

While we expect economic and investment implications from the elections, the track of the pandemic and the economic recovery from the 2020 global recession still loom as possibly larger considerations in the near term. Here, some key ideas to keep in mind.

1. We favor taking some steps before the elections.

These steps include our current asset class and sector preferences that come from themes that we think will dominate the economy no matter who wins.

Sign showing positive and negative performance

2. Consider consulting with tax or estate professionals

Another step to take now or before the end of the year is to consult with tax and estate professionals, in order to consider possible tax changes as of January 1, 2021.

Hand writing on a notepad

3. Wait on policy-related market implications until probably sometime in the first quarter of next year.

It may take until then to see more clarity on the congressional balance of power, the legislative agenda, and how key positions are staffed.

Woman interacting with a laptop computer.

Read the full report

Find more details—including additional insights for investors and details on policies that could impact the markets—in the Guide to the 2020 Elections.

View the full report (PDF)

See more election coverage

Visit the Elections 2020 site from Wells Fargo Investment Institute for more on the tax, spending, regulatory, and trade policy issues that tend to affect investors most.

Visit Elections 2020: Insights and Impacts

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Risk considerations

Forecasts and targets are based on certain assumptions and on views of market and economic conditions which are subject to change.

Each asset class has its own risk and return characteristics. The level of risk associated with a particular investment or asset class generally correlates with the level of return the investment or asset class might achieve. Stock markets, especially foreign markets, are volatile. Stock values may fluctuate in response to general economic and market conditions, the prospects of individual companies, and industry sectors. Foreign investing has additional risks including those associated with currency fluctuation, political and economic instability, and different accounting standards. These risks are heightened in emerging markets. Small- and mid-cap stocks are generally more volatile, subject to greater risks and are less liquid than large company stocks. Bonds are subject to market, interest rate, price, credit/default, liquidity, inflation and other risks. Prices tend to be inversely affected by changes in interest rates. High yield (junk) bonds have lower credit ratings and are subject to greater risk of default and greater principal risk. Preferred securities have special risks associated with investing. Preferred securities are subject to interest rate and credit risks. Preferred securities are generally subordinated to bonds or other debt instruments in an issuer’s capital structure, subjecting them to a greater risk of non-payment than more senior securities. In addition, the issue may be callable which may negatively impact the return of the security.

Communication services companies are vulnerable to their products and services becoming outdated because of technological advancement and the innovation of competitors. Companies in the communication services sector may also be affected by rapid technology changes; pricing competition, large equipment upgrades, substantial capital requirements and government regulation and approval of products and services. In addition, companies within the industry may invest heavily in research and development which is not guaranteed to lead to successful implementation of the proposed product. Risks associated with the Consumer Discretionary sector include, among others, apparel price deflation due to low-cost entries, high inventory levels and pressure from e-commerce players; reduction in traditional advertising dollars, increasing household debt levels that could limit consumer appetite for discretionary purchases, declining consumer acceptance of new product introductions, and geopolitical uncertainty that could affect consumer sentiment. Some of the risks associated with investment in the Health Care sector include competition on branded products, sales erosion due to cheaper alternatives, research and development risk, government regulations and government approval of products anticipated to enter the market. Risks associated with the Information Technology sector include increased competition from domestic and international companies, unexpected changes in demand, regulatory actions, technical problems with key products, and the departure of key members of management. Technology and Internet-related stocks, especially smaller, less-seasoned companies, tend to be more volatile than the overall market.

Wells Fargo and its affiliates are not legal or tax advisors. Be sure to consult your own legal or tax advisor before taking any action that may involve tax consequences. Tax laws or regulations are subject to change at any time and can have a substantial impact on individual situations.

General disclosures

Global Investment Strategy (GIS) is a division of Wells Fargo Investment Institute, Inc. (WFII). WFII is a registered investment adviser and wholly owned subsidiary of Wells Fargo Bank, N.A., a bank affiliate of Wells Fargo & Company.

The information in this report was prepared by the Global Investment Strategy (GIS) division of WFII. Opinions represent GIS’ opinion as of the date of this report and are for general informational purposes only and are not intended to predict or guarantee the future performance of any individual security, market sector or the markets generally. GIS does not undertake to advise you of any change in its opinions or the information contained in this report. Wells Fargo & Company affiliates may issue reports or have opinions that are inconsistent with, and reach different conclusions from, this report.

The information contained herein constitutes general information and is not directed to, designed for, or individually tailored to any particular investor or potential investor. This report is not intended to be a client-specific suitability or best interest analysis or recommendation, an offer to participate in any investment, or a recommendation to buy, hold, or sell securities. Do not use this report as the sole basis for investment decisions. Do not select an asset class or investment product based on performance alone. Consider all relevant information, including your existing portfolio, investment objectives, risk tolerance, liquidity needs, and investment time horizon. The material contained herein has been prepared from sources and data we believe to be reliable, but we make no guarantee to its accuracy or completeness.

Wells Fargo Advisors is registered with the U.S. Securities and Exchange Commission and the Financial Industry Regulatory Authority, but is not licensed or registered with any financial services regulatory authority outside of the U.S. Non-U.S. residents who maintain U.S.-based financial services account(s) with Wells Fargo Advisors may not be afforded certain protections conferred by legislation and regulations in their country of residence in respect of any investments, investment transactions, or communications made with Wells Fargo Advisors.

Wells Fargo Advisors is a trade name used by Wells Fargo Clearing Services, LLC, and Wells Fargo Advisors Financial Network, LLC, Members SIPC, separate registered broker-dealers and nonbank affiliates of Wells Fargo & Company.

© 2020 Wells Fargo Investment Institute. All rights reserved. CAR-0920-00756

  • Video: How can the November elections affect portfolios?
  • Most likely election outcomes
  • Comparing policies: Likely to unlikely outcomes
  • Investment implications
  • Preparation and planning
  • View our Elections 2020 website
  • Back to top
  • Video: How can the November elections affect portfolios?
  • Most likely election outcomes
  • Comparing policies: Likely to unlikely outcomes
  • Investment implications
  • Preparation and planning
  • View our Elections 2020 website
Download the full report (PDF)
Download the full report (PDF)