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Investment Institute

Guide to the 2020 Elections

Potential impacts on policy and portfolios

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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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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.

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.

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

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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

Download the full report (PDF)