This article is from the WeChat public account: New Fortune (ID: newfortune) , author: Ding Anhua, from the cover: Oriental IC
Business tycoon Bloomberg’s entry into the competition and Trump’s dilemma in impeachment investigations have greatly increased the complexity of the 2020 US presidential election. It is expected that Trump’s policy focus will be shifted domestically to avoid multi-line operations, and I believe he has realistic urgency to reach a phased trade agreement with China as soon as possible.
Regardless of whether Trump is re-elected, investors can pay attention to the opportunity for the equity market to rebound after the election. Perhaps the re-election will be even greater.
It’s been less than a year since the 2020 US presidential election, and financial markets’ interest in the US election has gradually increased. At present, 21 candidates have indicated their intention to run. Elections within the Democratic Party are far from clear. Former New York mayor and business tycoon Bloomberg joined the competition, and Trump was caught in an impeachment investigation, which greatly increased the complexity of the election prospects.
Looking forward to next year, we can start with the policy propositions and sentiments of the main candidates, make preliminary judgments on the general election situation and the possible impact of the election on the financial market, and look forward to a longer-term future.
I. Trump: Opportunity for Re-election
In 2016, Trump defeated Hillary to take over the White House and shocked the world. Over the past three years, Trump’s alternative governing style has been exposed, and “US priority” economic policies have placed multilateral trade and foreign policy as subordinate goals. However, in retrospect, Trump did honor his original election promises to a considerable extent, including passing the largest tax reform bill in 30 years, renegotiating the US-Mexico-Canada Agreement, and China and the EU Important trading partners have imposed tariffs and cracked down on illegal immigration. From the perspective of financial markets, Trump’s changeable style has continued to stir up market fluctuations, but has also contributed to the “longest bull market” in the United States.
In the first half of 2020, the Democratic and Republican parties will conduct primary party elections. Mid-year candidates will be determined by mid-year. Official elections will be held on November 3. Trump has announced his re-election bid, along with Walsh and Weld who have indicated their participation in the Republican primary. At present, Trump’s approval rate within the Republican Party is close to 90%. It is not surprising that Trump has faced very little intra-party challenges.
Currently, the electoral system is good for Trump. A total of 538 electors from 50 states plus the District of Columbia constitute an electoral college. (electoral college) , no matter how many votes the winners in each state win, “The winner takes all.” In 2016, Trump won by the electoral college system. (to 304 votes to 227 votes) , in fact, his popular votes Hillary. Next year, Trump loses no more than 36 electoral votes for reelection, which means that even if he loses Pennsylvania (20 votes ) (16 votes) , Michigan still maintains a win.
Judging Trump’s chances of reelection, from a negative perspective, there are three main aspects.
First, the poor opinion polls are satisfactory. Since his inauguration, Trump’s satisfaction has remained at about 40%, which is lower than previous presidents. Judging from the state’s net approval rating for Trump, there has been a general decline in the past three years. Although, the current polls are not effective in predicting the results of next year’s elections, especially if opponents have not yet appeared, the polls cannot reflect the “choice” characteristics of voting. The biggest revelation is that Trump’s satisfaction is quite stable, showing that the camps for support and opposition are clear.
Second, the impeachment investigation. This can be described as a “political gamble.” Because Congress has a high barrier to impeachment and requires two-thirds of the votes in the Republican-dominated Senate, Trump’s chances of impeachment are still low. There has never been an impeached president in history, knowing that he cannot do it, and the impact on next year’s election will be more complicated: On the one hand, the investigation may continue for several months, which will further increase the differences between the two parties, complicated allegations and hearings Will cause trouble and a loss of public opinion; on the other hand, impeachment dominates domestic political issues, and Trump’s occupying the media may be blessed by misfortune, which is not conducive to Democratic presidential candidates. Of course, once Trump’s major scandal is revealed during the impeachment process, it is likely to subvert the election.
Third, the Republican Party has suffered setbacks in the governor election . In November this year’s governor election, the Republican Party lost its traditional vote in Kentucky. As an important agricultural state, Trump won an absolute advantage in Kentucky in the last election. It is worth noting that the election of the governor was defeated. Before the election, Trump fully endorsed the Republican candidate, which has implications for next year’s election.
Democratic candidates: a moderate and radical choice
Democrats in the Democratic presidential election are still more chaotic. According to opinion polls, former Vice President Biden ’s support rate is temporarily leading, but the promotion is weak. . At present, the Democratic Party has extremely fierce internal competition, serious internal friction, and lacks candidates with charismatic leadership. On November 24th, billionaire and former New York City Mayor Bloomberg officially announced that he would participate in the Democratic presidential candidate race, or break the current “three-legged” pattern of Biden, Warren and Sanders.
From the perspective of the candidate ’s policy propositions, the Democrats are facing the choice between “moderate” and “radical” policies: Biden believes that Warren and Sanders and others advocate a wealth tax and universal health insurance. Span class = “text-remarks” label = “Remarks”> (Medicare for All) , unconditional radical policies such as eliminating student debt are unrealistic and will scare away middle voters and make Trump re-elected. In recent years, Trump has provoked “populist” issues. American politics has become more antagonistic and divided. Political polarization has led to a reduction in moderate middle voters and an increase in far-right and far-left voters. Policy claims; thisBiden’s route is not favorable, and the election of Bloomberg, who is also a moderate, may further impact Biden’s election, and the situation is more complicated.
III. Economy and Politics: The Main Factors Affecting Elections
Historically, the current president has a clear reappointment advantage. Of the 12 presidents since Roosevelt in 1933, only three failed White House hosts. The advantages of re-election are reflected in such aspects as popularity, governing resources, raising election funds, and voters’ stability of mind. However, the US election is still full of unknowns until the last minute, because there may be various incidents of interference.
From the perspective of economic performance, Trump’s chances of re-election are relatively high. When the U.S. economy is in a period of high unemployment, low growth, and high inflation, the chances of a re-elected president decrease significantly. Since Trump took office, he has continued the longest economic expansion in history through tax reform and large-scale fiscal expenditures. At present, the unemployment rate is at a record low, the economy is still growing moderately, and there is no obvious inflationary pressure.
From the policy framework, the differences between the two parties are obvious. If Trump is re-elected, he will continue to crack down on illegal immigration, seek tax cuts, address health care issues, continue protectionism and unilateral foreign policy, pressure on traditional allies, withdraw from international agreements and organizations, and strengthen support for traditional energy Wait. If Democratic candidates successfully defeat Trump into the White House, Democrats will tend to increase taxes on the rich, large corporations and Wall Street, revisit climate change issues, improve universal health insurance bills, promote gun bans, regulate supertech companies, External alliances with traditional allies.
In terms of trade policy, the Democratic presidential candidate basically agrees with the need to continue to reduce the US trade deficit and improve “unfair” trade relations. The difference between them and Trump is not strategic, but technical. Some Democratic candidates (including Warren) have stated that if elected, they are willing to withdraw the tariffs imposed on China. Wait for traditional allies to focus on trade relations with China. It can be said that in this presidential election, the Democratic Party has given up its tactics of arguing with Trump on trade issues with China. This shows that to a certain extent, no matter what the outcome of the 2020 election, it is difficult for the United States to protect its trade protection measures and restrictions on China’s science and technology security.
The economic and market performance of the election year is critical to the outcome of the election. The study found that the impact of economic growth in the election year on voters’ tendency to vote is much greater than the economic situation in the years before their term of office. This means winning the company by playing “economic cards”President, Trump must make further efforts next year to maintain economic growth and market vitality. It is expected that Trump’s policy focus will turn to the domestic, and it is possible to continue to increase fiscal stimulus and further pressure the Fed to relax monetary policy. To avoid multi-line operations, we believe that Trump has realistic urgency to reach a phased trade agreement with China as soon as possible.
Fourth, capital market: let history show the future
In order to explore the impact of the US election on different types of assets, we have calculated the performance of assets such as equity, real estate, fixed income, foreign exchange and precious metals during the 17 rounds of the presidential election from 1950 to the present, as described below.
First, from the perspective of election years and non-election years, the performance of the US dollar in election years is stronger than in non-election years, while the performance of gold and interest rates is weaker than in non-election years. The main logic is that the incumbent president is inclined to introduce policies that are good for economic growth. In addition, the year-on-year performance of US stocks and US house prices was not significantly affected by the election.
Second, in terms of the quarterly performance of the election year, uncertainty has clearly disrupted the market. Risk assets usually show a weak first and then a strong one. The performance of U.S. stocks in the third quarter is significantly weaker than that in the fourth quarter. While the US dollar does the opposite. The logic is that in the early stage of the election, the market showed some risk aversion to the uncertainty of the election results, and after the election, the stock market is expected to usher in a rebound opportunity after the risk is released.
Third, whether the incumbent president seeks re-election also has an impact on the capital market. Since the presidency can only be held for a maximum of two terms, whether the incumbent president is re-elected, the mentality and even the policies are significantly different. Historical data shows that the equity market performs better in non-re-elected years than in non-re-elected years; the market performance of the US dollar index in re-elected years is weaker than in non-re-elected years; U.S. Treasury interest rates show signs of rebound in both re-elected and non-re-elected years, of which Long-term interest rates have rebounded more strongly in reelection years. One possible explanation is that the re-election of the President can reduce the market’s risk expectations, which is more conducive to the situation of strong stocks and weak debts.
Fourth, from the perspective of political parties, the difference mainly manifests in the bond market. If the Democratic Party wins, the market will present a situation of double bulls in stocks and bonds; the Republican Party will win, and the market will present a pattern of strong shares and weak bonds. There seems to be no solid economic logic here, perhaps purely the result of a random walk.
To sum up, regardless of whether Trump is re-elected, investors can pay attention to the opportunity for the equity market to rebound after the election. And if there is a signal of a party change of (Democracy comes to power) or the probability of Trump’s re-election declines, investors may need to reduce it in the third quarter. The allocation of equity, at this time, due to high policy uncertainties, the stock market under negative risk often showed negative returns. Correspondingly, in the third quarter, the US dollar index had a long opportunity to be promoted by hedging, and the rebound rate was higher under the Democratic victory scenario. It is important to emphasize that the US election is just one of many events that will affect the performance of the capital market next year and needs to be shared with various other factorsconsider.
This article is from the WeChat public account: New Fortune (ID: newfortune) , author: Ding Anhua