The US election is less than three weeks away, but the result is difficult to predict. With uncertainty around how voting will take place, the risk of increased infections and Donald Trump’s recent COVID-19 diagnosis, this election day will make history. The spectre looms large in the background, but who will triumph, Trump or Biden?
“Investors should be cautious when trying to predict who will occupy the White House in 2021,” according to Adrian Lowcock, Head of Personal Investing at Willis Owen. “Trump’s victory in 2016 proves that getting the outcome wrong can significantly impact your investments.
“A victory for the Democrats in both houses, if Biden wins, will shift investor focus to potential tax rises. However, the most likely scenario is that there will be a substantial amount of fiscal stimulus in the first quarter of 2021, which should precede any tax increases the democrats want to make.
“If Trump wins the most likely outcome is a divided congress. The status quo would be largely neutral for stock markets because there would be minimal policy changes. The focus of markets would shift to the size and timing of additional fiscal stimulus policies, and how any delays in stimulus negotiations could impact markets.”
Even predicting the correct binary outcome might not lead markets to behave the way investors might expect because of the current economic and political climate.
However, Lowcock says investors can consider what factors are likely to remain the same, whatever the presidential outcome.
Below Lowcock identifies three areas to look out for.
More stimulus – The US is likely to approve a massive stimulus programme in the region of $2trn at the beginning of 2021. The US economy has suffered like many other countries but differences in its socio-economic system mean that the support for wages is even more crucial, which can be seen in recent employment figures. With the significant amount of stimulus anticipated next year, we should expect the economy to roar back as it has done historically to the surprise of investors.
Undervalued opportunities – The markets look expensive, as large companies’ share prices have dominated the market with record highs and dramatic recovery to pre-Covid valuation levels. On the surface, it looks like the whole market has recovered, but this is not the case. Just as in other regions, many company stocks are trading at subdued levels and there are opportunities within the US market to invest in some strong brands.
COVID-19 – The US election may change how the country deals with COVID-19, although it is hard to see a significant shift in policy given the current situation in the US. The fact is, irrespective of the outcome of the US election, businesses in the US have already started to adapt to the COVID-19 crisis. The US system is extremely flexible and companies are well placed to exploit the changes. In 2021, the US, along with the rest of the world, are likely to begin to see an end to the pandemic, which should also support markets.
Artemis US Select – Cormac Weldon looks for economically sensitive companies with a focus on businesses that perform best during the growth phase of the economy. He has a portfolio of between 40 to 60 companies where he believes the potential returns outweigh the risk of a potential loss. When analysing firms he looks at the impact different scenarios could have on a company to assess the risks.
JPM US Equity Income – Clare Hart focuses on companies with relatively attractive dividend yields and high levels of dividend cover. She invests in businesses with durable franchises, consistent earnings, high return on invested capital and strong management. Hart pays close attention to capital preservation and tends to favour companies with a sustainable advantage.
Adrian Lowcock, Chris Tuite
Head of Personal Investing Director
Willis Owen MRM Communications
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Notes to Editors
Willis Owen is one of the UK’s leading online investment service providers. Founded more than 20 years ago Willis Owen now has around £1bn of funds under management.
Willis Owen Limited is authorised and regulated by the Financial Conduct Authority.