With less than two months to go until the 2020 US presidential election, the two major candidates’ economic policies are less developed than usual, leaving traders to “read between the lines” of public speeches and forecast priorities based on historical party trends. While we expect to garner more details in the home stretch of the campaign, including around the upcoming debates (see a full schedule of events we’ll be watching before and after election night here), there’s still an opportunity for forward-looking traders to start identifying potential winners and losers, regardless of the election outcome.
Unlike his Democratic rival Joe Biden, the “issues” page for the 2020 Trump campaign is called “Promises Kept” and focuses more on the President’s achievements during his first term. Reading between the lines, traders can interpret that a second term with Trump as president would focus on solidifying the priorities from his first term. Below, we highlight some of the most actionable policies for traders, along with the potential market implications:
COVID-19 and the Economy
Per Trump’s second term agenda press release, the President is focused on developing a COVID-19 vaccine by the end of 2020 and a “return to normal” in 2021. We’re by no means experts on the science of vaccine development, but the news has been generally positive on that front, raising the odds of a vaccine in the coming months. It is worth noting that, at least based on this press release, additional support for state and local governments and extending unemployment benefits further are not high priorities at this time.
Outside of the pandemic, Trump has vowed to create 10M new jobs in ten months and 1M new small businesses if he is re-elected, though there is no detail on the specific programs his administration would use to support these goals. After the last four years of the Trump presidency, including more than six months of pandemic-restricted economic activity, traders can expect a continuation of the recent economic trends if President Trump is re-elected.
Following on his signature 2017 “Tax Cuts and Jobs Act,” President Trump is emphasizing additional tax cuts “to boost take-home pay and keep jobs in America.” The President has also emphasized targeted tax solutions like “Made in America” tax credits and expanding opportunity zones to support domestic priorities. Though he doesn’t think of them in that way, President Trump’s tariffs act as an import tax on international trade (see “Foreign Trade and Relations” below for more). For traders, the prospect of additional tax cuts for US consumers and businesses may raise profit expectations for publicly-traded companies while serving as a potential long-term headwind for US treasury bonds, which depend on taxes pay interest payments.
Whereas Biden is more focused on support green energy and other progressive industries, President Trump has focused more on military and defense spending, vowing to “maintain and expand America’s unrivaled military strength” if re-elected. Per his convention speech, other federal spending priorities under President Trump would include the “Space Force”, building out infrastructure and establishing a national high-speed wireless internet network. As our astute readers have already likely figured out, a second Trump term may therefore benefit defense stocks, communication firms, and traditional infrastructure names (though Biden has also emphasized infrastructure, so that sector may stand to benefit regardless of who wins the election).
In sharp contrast to Joe Biden’s focus on climate change and green energy, Trump has indicated that he would “continue [his] deregulatory agenda for energy independence.” By lifting certain environmental regulations (or at least not imposing any additional “red tape”), a second term for Trump would likely boost the near-term profit expectations for legacy energy firms.
As we’ve noted before, President Trump has been increasingly antagonistic toward the “Big Tech” companies (Facebook, Amazon, Apple, Google, Microsoft, Netflix, etc) than his rival, so those names could be more likely to come under antitrust scrutiny under another four years with Trump at the helm. Given the outstanding performance of these technology stocks in recent years, that is a risk that few investors are considering at the moment.
Foreign Trade and Relations
If re-elected, Trump may presume that the voters approve of his actions on the global front as well, opening the door for further tariffs over the next four years and potentially putting a damper on the US’s international trade. If seen, this could favor more domestically-focused stocks at the expense of global manufacturers. Paradoxically, it could also benefit the US dollar at the expense of the currencies of more export-dependent countries like Japan and New Zealand.
While Trump has been conciliatory toward some traditional US allies like the UK and Japan, he’s certainly more inclined to oppose most of the US’s historical allies in Western Europe and North America. Relative to a Biden presidency, currencies like the euro and Canadian dollar could struggle as traders look ahead to the potential for more tariffs and less bilateral trade. Notably, both parties have increasingly expressed unfavorable views toward China in recent years, but President Trump has explicitly outlined policies to “bring back” 1M manufacturing jobs from China, provide tax credits for companies that bring back manufacturing to the US, and prohibit federal contracts for companies that outsource work to China. At this point, it’s difficult to see the US and China returning to amiable terms, on trade or otherwise, any time soon.
As we’ve repeatedly noted, traders in general tend to overestimate the impact of politics on the markets, but there are still opportunities to identify specific sectors, currencies, and asset classes that could benefit from a potential second term for Donald Trump. By planning for the potential outcomes well in advance, readers will be prepared regardless of what happens on election night, and as a bonus, more ambitious traders can track the results of the upcoming debates and polls to identify opportunities to act “ahead of the crowd” by tilting their positions toward potential winning trades before the outcome 100% clear.