Quick Take: The Election’s Final Stretch

One of the biggest unknowns of the year—the outcome of the U.S. presidential election—is still to be decided.

It’s been a year of unprecedented disruption and uncertainty. And one of the big unknowns—the outcome of the U.S. presidential election—is still to be decided.

In an October 15 webcast, Leo Grohowski, Chief Investment Officer at BNY Mellon Wealth Management, and Dan Clifton, top-ranked Washington policy analyst and Head of Policy Research at institutional brokerage and advisory firm Strategas Research Partners, explored the latest signals on who might win the election, the timing of possible tax increases and sectors to watch.

At the end of the day, this election represents a call to action, but not overreaction.

Here are three key takeaways.

1.

It’s all about the swing states—particularly Florida

There are many indicators that could be used to predict who will win the presidential election—polls, the stock market, the dollar, GDP, COVID-19 rates and the president’s approval rating among them. But ultimately, it’s voting in the swing states that will determine the election outcome. Clifton says that Florida, in particular, is the state to watch in this election, as it had big problems with vote counting in the 2000 election and has since become “very good” at administering elections. While some states won’t have their mail-in ballots tallied until after Election Day, Florida is one of the early counters of mail-in votes; therefore, its Election Day results could offer a good sense for who will win the race overall.

Indeed, with Democrats more likely to vote by mail-in ballot, and with states offering different deadlines for mail-in voting, it’s likely that a victory by President Donald Trump on Election Day may not be the final story. “You’re looking at possibility of a very large victory for the president in machine voting on election night…then, over the course of the next 6-10 days, you could start to see that lead get chipped away.” Clifton recalls a similar situation in the 2018 Arizona Senate race, when the Republican candidate won on election night and slowly lost her lead over the next six days.

2.

There’s no firm timing around potential tax increases

According to Democratic candidate Joe Biden’s proposals, those who earn above $400,000 could see their marginal tax rate increase to 39.6%. Meanwhile, capital gains and dividends tax rates could shift from a maximum of 23.8% to a maximum of 43.4% for taxpayers with income above $1 million. But the timing of such proposals is unclear, says Clifton. “Some Biden advisors are out there saying he’s not going to do tax increases immediately … But he’s saying ‘I’m going to do them on Day 1,’ which is a different message.” Although we don’t know what tax policy will ultimately get passed, there are many planning opportunities for investors to employ in preparation for potentially higher taxes. It’s important that investors stick to long-term strategies instead of making emotionally driven bets. “At the end of the day, this election represents a call to action, but not overreaction,” says Grohowski.

3.

Policy platforms will influence sector winners and losers

One of the most tangible outcomes of a Biden or Trump win will be felt on a sector level. As Grohowski points out, sectors that are likely to benefit from a Biden win include capital goods, construction, managed care and renewable energy; sectors that are likely to be hurt by a Biden win are financials and pharmaceuticals. As policies on trade and taxes come to light, there is likely to be more movement at the sector level, creating opportunities for bottom-up stock selection, says Grohowski. “It will be very important to monitor that, and that’s what we’re doing.”

For more, watch the full webcast here.

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