John F Kennedy was the President of the United States when I first started work in the City of London, but I doubt I had accumulated enough cash to make my initial foray into the world of investing until Lyndon B Johnson took his seat in the Oval Office. Since then no fewer than nine Presidents have come and gone – a total of eleven incumbents of the White House since I first ventured into the Square Mile.
Never before have I felt the need to watch so closely the likely outcome of an American election. True, this time really is different in so far as the issues and background are concerned. We have an incumbent President with no history of prior governmental involvement, who has taken the country in directions that few would have considered likely and whose decisions could have lasting implications, not just for the American people, but for global society as a whole.
And we have the pandemic, with all the pressures and disruption this applies to countries all around the world, with the US centre stage in terms of the health and economic effects that have developed. A trade spat with China and our own endeavours to establish closer trading links for our post-Brexit existence simply serve to add to the complications that surround what once would have been a cosy contest, unremarked outside the United States of America.
As I write this, the polls suggest a victory for the Democratic contender. I don’t know about you, but I struggle a little with the distinction between American political parties. While I accept that the Republicans sit to the right of the Democrats, I’m not always sure how that translates into government policy. I’m reminded of a speech given by Bob Hope in the 1960s, probably at the time that the Conservative government led then by Alec Douglas-Hume gave way to Harold Wilson’s Labour administration. He described the Labour party as being Socialist, but then called the Conservatives socialist too, as they probably would have appeared in American eyes.
The situation is further complicated by the nature of the US constitution. In the UK, the executive (effectively the Cabinet) will usually control the legislature. In the US, the executive (the President) can be of a different political persuasion to the legislature, which has two distinct legislative bodies which can be controlled by different political parties. Add in the third arm of a democratic governmental system and the waters become even more muddied, with the judiciary much more open to political bias in the US than here in the UK.
Returning to November’s likely result, perceived wisdom has it that the Republicans are more business friendly, so their victory is more likely to see a rally in share prices. I have two brothers who are resident in the United States, both academics and, unsurprisingly, supporters of the Democratic party. Both claim that this is a false perception and statistics suggest they are right, with little correlation between who wins and how shares perform during the last 40 years, other than initially in some instances.
Of course, the nature of a win is far from straightforward, with the Presidency and control of the Senate both up for grabs. Still, it does mean that, at the very least, we seem likely to enter a period of uncertainty and likely volatility as the election date approaches. Whoever wins will be faced with rebuilding the economy after the ravages of Covid-19 and for finding the means to pay for the costs that have been built up during the height of the crisis. Bear in mind that to get legislation passed in America, both the House of Representatives and the Senate need to give their approval.
As to what it might mean for investors, only time will tell, with so much else happening that could affect sentiment. However, if Democrats take charge of both the White House and the Senate, we should expect higher taxes and more government intervention in such areas as energy. Whatever one thinks about President Trump, it is likely that markets would prefer him to be returned. In any event, his ability to introduce further legislation seems likely to be severely restricted.
Perhaps the biggest risk is a very close finish between the parties which could encourage the losing side to refuse to accept the result. This would simply prolong the uncertainty, with all the concomitant effect this could have on markets. It is said that when America sneezes, the rest of the world catches pneumonia. This is probably less true than has been the case in the past, but for once I will be following the result of this particular tussle with interest.
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