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What 2020 Election Scenarios Mean for Investors

Market and asset class returns to va🅺ry widely depending on the🌼 election outcome

Key Takeaways

  • U.S. presidential elections less than a month away
  • "Blue wave" or Democratic sweep probability rising in prediction markets
  • Size and nature of more COVID stimulus will depend on congressional elections

The last time we surveyed our readers, we found that anxiety, by and laౠrge, was centered around the outcome of the U.S. presidential elections. About half of you cited it as their number one concern about what will imp🌟act their investments.

We're now less than 25 days away from the election and 103 days away from Inauguration Day, and investors and traders are looking closely at probabilities and polls. For example, in the last three months, the Mexican peso has risen 6% against the dollar, while the Russian ruble has collapsed almost 8% as Trump loses ground in the polls and foreign policy changes are anticipated. It's the exact reverse of what was happening in 2016. Money has also been flowing into the green energy sector, cannabis stocks, and infrastructure companies that will possibly benefit from a Biden administration.

predict election
Source: Goldman Sachs.

Also key for policy is what happens in Congress. Goldman Sachs says the probability of a "blue wave" or Democrats taking control of the House, Senate and Presidency has been rising in prediction markets and was recently at 59%. Analysts predict higher U.S. bond yields and S&P 500 澳洲幸运5开奖号码历史查询:cost of equity🌜 wi💞th lower S&P 500 price in this scenario versus a divided government. 

election predictions
Source: Goldman Sachs.

Besides what either winner will mean for Wall Street regulation and corporate earnings (澳洲幸运5开奖号码历史查询:Biden's tax plan esಌpecially), the biggest focus for the market right now is more stimulus. The folks at presented the following four possible scenarios:

  • Trump wins and Republicans retain the Senate: A deal similar to the Republicans’ offer around $1.5 trillion would be likely but far from assured.
  • A "blue wave" or Democratic sweep but keep the filibuster in place: A deal in the $1.5 to $2 trillion range becomes very likely. Without the filibuster, a potential deal may get even bigger. 
  • Biden wins but Republicans retain the Senate: There is a risk of no deal at all in this gridlock scenario, though moderates may come through with a "skinny" deal.
  • Republican sweep: This scenario would almost certainly lead to a skinny deal including supplemental jobless benefits, small business aid, corporate liability protections, and some COVID-19-related funding. We view this as the most unlikely scenario given Democrats’ stronghold on the House this cycle.

Below are all six possible outcomes and the Dow's performance historically, according to . The best outcome has been with a 𓆏Democrat in the White House and a split Congress, which has only happen♌ed 3.4% times.

election dow
Source: Charles Schwab.
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