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2020 Election: Policy Plays


Head of SPDR Americas Research

Matthew Bartolini takes an in-depth look at the candidates’ policies and offers implementation ideas to position portfolios based on the outcome of the presidential election.

By the end of September, the 2020 US presidential election had already witnessed many twists and turns. However, the news breaking on October 2 that President Trump and First Lady Melania Trump had tested positive for COVID-19 added a new layer of uncertainty to this cycle.

Like the long list of October election surprises — most recently, the Comey Letter in 2016 — this announcement will have a short-term impact on polls and markets. However, the five policy issues discussed in my earlier blog could shape the trajectory of market segments for years to come. Here we offer implementation ideas to position portfolios based on the outcome of the presidential election.


Policies: Biden plans to increase taxes for corporations and high earners, while Trump has called for further tax breaks.

Probability: Passing new tax legislation depends on whether Republicans can maintain control of the Senate — a toss-up as of now. Currently, the probability of the House remaining under Democratic control is 85%.1  So, a split Congress leaves little room to get a tax deal done. However, if the Senate goes to the Democrats and Biden wins, his tax policy plans are likely to be implemented.

Plays: Biden’s policies suggest that investors focus on low tax-sensitive sectors, such as Real Estate. That sector’s earnings may be less affected if tax rates rise, given that its average effective tax rate in 2019 was just 4%.2  Tax-exempt bonds may be another Biden play, as those securities would likely become more attractive sources of returns, considering that the interest paid to investors is not subject to federal taxes.

If Trump wins a second term, high tax rate areas — such as Consumer Staples (29% effective rate) and Retail (24%) — may do well, as their earnings could be positively impacted by paying less in taxes. Additionally, lower individual tax rates could spur consumption and be a benefit to certain consumer-focused markets.

avg tax rate 2019

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1PredictIt as of October 2, 2020
2Bloomberg Finance L.P. as of October 2, 2020
3 Bloomberg Finance L.P. as of October 2, 2020
4 “U.S. Consumed More Renewables Than Coal for First Time”, Wall St. Journal May 28, 2020.
5 FactSet as of October 2, 2020
6 Bloomberg Finance L.P. as of October 2, 2020
7 Bloomberg Finance L.P. as of October 2, 2020 base on aggregated revenue data for the sector from year-end 2016 to today.

Originally Posted on October 7, 2020 – 2020 Election: Policy Plays


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