This website uses cookies to collect usage information in order to offer a better browsing experience. By browsing this site or by clicking on the "ACCEPT COOKIES" button you accept our Cookie Policy.

2020 Election: Policy Plays

By:

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.

Taxes

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

Click Here to Read this Full Article

Footnotes

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

Disclosures

The information provided does not constitute investment advice and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell a security. It does not take into account any investor’s particular investment objectives, strategies, tax status or investment horizon. You should consult your tax and financial advisor.

The views expressed in this material are the views of SPDR ETFs and SSGA Funds Research Team through the period ended October 2, 2020 and are subject to change based on market and other conditions and do not necessarily represent the views of State Street Global Advisors or any of its affiliates. This document contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or
developments may differ materially from those projected. The information provided does not constitute investment advice and it should not be relied on as such.

Frequent trading of ETFs could significantly increase commissions and other costs such that they may offset any savings from low fees or costs.

Diversification does not ensure a profit or guarantee against loss.

Concentrated investments in a particular sector or industry tend to be more volatile than the overall market and increases risk that events negatively affecting such sectors or industries could reduce returns, potentially causing the value of the Fund’s shares to decrease.

Passively managed funds invest by sampling the Index, holding a range of securities that, in the aggregate, approximates the full Index in terms of key risk factors and other characteristics. This may cause the fund to experience tracking errors relative to performance of the Index.

Equity securities may fluctuate in value in response to the activities of individual companies and general market and economic conditions. Funds investing in a single sector may be subject to more volatility than funds investing in a diverse group of sectors.

Investing involves risk including the risk of loss of principal.

Growth stocks may underperform stocks in other broad style categories (and the stock market as a whole) over any period of time and may shift in and out of favor with investors generally, sometimes rapidly.

Disclosure: Interactive Brokers

Information posted on IBKR Traders’ Insight that is provided by third-parties and not by Interactive Brokers does NOT constitute a recommendation by Interactive Brokers that you should contract for the services of that third party. Third-party participants who contribute to IBKR Traders’ Insight are independent of Interactive Brokers and Interactive Brokers does not make any representations or warranties concerning the services offered, their past or future performance, or the accuracy of the information provided by the third party. Past performance is no guarantee of future results.

This material is from State Street Global Advisors and is being posted with permission from State Street Global Advisors. The views expressed in this material are solely those of the author and/or State Street Global Advisors and IBKR is not endorsing or recommending any investment or trading discussed in the material. This material is not and should not be construed as an offer to sell or the solicitation of an offer to buy any security. To the extent that this material discusses general market activity, industry or sector trends or other broad based economic or political conditions, it should not be construed as research or investment advice. To the extent that it includes references to specific securities, commodities, currencies, or other instruments, those references do not constitute a recommendation to buy, sell or hold such security. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.

In accordance with EU regulation: The statements in this document shall not be considered as an objective or independent explanation of the matters. Please note that this document (a) has not been prepared in accordance with legal requirements designed to promote the independence of investment research, and (b) is not subject to any prohibition on dealing ahead of the dissemination or publication of investment research.

Disclosure: Tax-Related Items (Circular 230 Notice)

The information in this material is provided for informational purposes only and does not constitute tax advice and cannot be used by the recipient or any other taxpayer to avoid penalties under any federal, state, local or other tax statutes or regulations, or to resolve any tax issue.

trading top