Page 18 - ISQ UK Aprl 2020

INVESTMENT STRATEGY QUARTERLY

PREVIEWING THE GENERAL ELECTION AND BEYOND materially increase the chance of a Democratic Senate majority
In our opinion, the medical, economic, and market outcome of after the 2020 election with significant consequences for the
COVID-19 will be a significant factor in the 2020 election. Should markets from a policy perspective. An economic downturn
economic and health conditions continue to deteriorate, we coupled with this scenario would steer the early policy direction
expect a rise in expectations that Joe Biden captures the White of a Biden presidency. We would expect to see stimulus efforts to
House and a rise in the probability of an all-Democratic jump-start the economy, which could be a positive boost to
government. While he would swing the agenda away from the infrastructure and unlocking consumer spending via debt relief
current Trump agenda (which has been received positively by the (e.g., student loans, medical debt). In turn, this could benefit the
market over the past four years), Biden is generally viewed as housing market by increasing demand if debt relief measures
promoting policy goals from the political mainstream and could spur a boom in housing demand by younger consumers who
easily push more fiscal stimulus. This would be viewed as having would otherwise have delayed a real estate purchase. Of course,
a neutral to positive impact on the market compared to the this would be balanced by potential negatives, such as significant
prospect of a Sanders presidency (which weighed on markets policy reforms targeting the Health Care, Financial, and Energy
earlier this year). Should COVID-19 avoid the worst-case scenarios sectors. As we frequently say in Washington, developments are
and the economy/market have a significant recovery in the latter never as bad as you initially fear, or as good as you hope.
half of the year, the momentum is likely to swing back toward
President Trump. The big question will continue to be the effect of
the current uncertainty on suburban voters. Incumbents are
traditionally viewed as the safer choice, but Biden’s familiarity
may upend this calculation as we expect a “return to normalcy” to
be the primary message of the Biden general election campaign.

In terms of a second term for President Trump, the initial reaction KEY TAKEAWAYS:
would be that this is a positive for the market should we see post-
COVID-19 recovery in the second half of this year. A wave of • In our opinion, the medical, economic, and market
momentum could produce down-ballot impacts that bring back outcome of COVID-19 will be a significant factor
an all-Republican government. Sentiment would be boosted on in the 2020 election. Should economic and health
the continuation of the Trump deregulatory agenda and stimulus conditions continue to deteriorate, we expect a rise
via additional corporate/individual tax cuts. However, an open in expectations that Joe Biden captures the White
question would remain as to whether the lack of any additional House and a rise in the probability of an all-Demo-
electoral checks would produce an unbound and bombastic cratic government.
President Trump on policy issues. A mitigating factor for the • Biden is generally viewed as promoting policy goals
market here would be that second-term presidents are motivated from the political mainstream and could easily push
by their legacy, and, as Trump is especially cognizant of market/ more fiscal stimulus. This would be viewed as having
economic metrics, his policy objectives should continue to a neutral to positive impact on the market compared
support a positive environment for macro fundamentals. to the prospect of a Sanders presidency (which
weighed on markets earlier this year).
Biden's strength in the South will stir a debate about the potential
down-ballot impact. The Senate seats in Alabama, North Carolina, • Should COVID-19 avoid the worst-case scenarios and
South Carolina, and the two seats in Georgia all lean Republican the economy/market have a significant recovery in
or are likely Republican seats at this point. We would not be the latter half of the year, the momentum is likely to
surprised if these elections become more competitive. They are swing back towards President Trump.
still a reach for Democrats, but winning any one of these would

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