Q: What impact will the elections have on the market? I’m worried about how the outcome might affect things.
A: The electoral scenario with the biggest potential market impact would be a Biden win and a democratic takeover of the Senate. If that occurs, you can expect an increase in the top income tax rate, an increase in corporate taxes, and other changes. How many changes occur would depend on the size of the democratic majority. In all cases, we do not expect taxes to decrease, given high deficits.
Any increase in taxes is likely to reduce economic activity, but we don’t think that the increase would be large enough or fast enough to cause a recession. It is more likely that growth would be slower, if a unified congress and president raise taxes. But this is not certain to occur and making decisions based on these possibilities is not a good investment practice.
As you can imagine, we work with clients across the political spectrum. Perceptions of the economy are affected by our preferences and biases. In other words, Republicans during the Obama administration were more likely to think that the economy and markets were doing worse than they were. The same has been true since 2016, but in reverse.
Investors give too much credit (and blame) to the president. There are many factors that affect the markets and the economy. As we said a few weeks ago, the most important consideration is your specific set of goals.
