B. Riley Advisor Talking Points: Has The Stock Market Priced In A Biden Victory?
“There are decades when nothing happens, and weeks when decades happen.” —Vladimir Lenin
The last few weeks have not been good for President Trump’s political fortunes. The New York Times released his long-hidden tax returns. The presidential debates were a dog’s dinner. And then he contracted and was hospitalized for the Coronavirus with only three weeks before the election.
Unfortunately for President Trump, the election is not going well. The virus has sidelined his campaign manager and over 24 other top campaign staff. He is also behind in the polls.
The Presidential Election Today
According to RealClearPolitics.com (RCP), and their average composite of all presidential polls, if the election were held today, President Trump would lose the popular vote with 41.6% vs. 51.8% for Biden.
Today, the U.S. Electoral College map of “toss-up states” looks even worse: (Data: RealClearPolitics.com – October 12, 2020)
|New Hampshire||52.0||43.0||Biden +9.0|
|North Carolina||48.7||46.8||Biden +1.9|
Whoever thought solidly Republican Ohio, Georgia and Texas would be considered toss-up states?
This means that a 1980 Reagan-like landslide is not out of the question. Almost every Republican senator is nervous about their prospects on November 3.
Can Republicans Keep The Senate?
There is only one Democratic senator who will probably lose, Senator Doug Jones (D) of Alabama.
However, there are nine incumbent Republican senators currently behind their Democratic challengers in the polls in Arizona, Colorado, Georgia, Iowa, Kansas, Maine, Montana, North Carolina, and in South Carolina, Lindsey Graham is tied with Jaime Harrison.
Currently, the Republicans only have a 53-to-47 majority in the Senate. The Democrats only need to win four seats to take control of the Senate.
Who Are The 2016 Trump Voters Switching To Biden?
President Trump is primarily losing the senior vote. This group has reliably voted Republican in every presidential election since 2004. But polls indicate that support is shifting this year.
In 2016, national exit polls showed that Trump won voters age 65 and older by +7 points, but this year, polls conducted since the first presidential debate show Joe Biden winning seniors by +5 points on average.
If you do the math, that works out to a +12 point swing toward Democrats since 2016.
So what are the electoral implications? Well, let’s look at which states have the highest proportion of senior citizens. The state with the highest share of seniors is Maine. That is the state where polls have seen a big swing toward Biden. He’s now ahead by around 15 points in polling averages, even though Hillary Clinton won Maine by only 3 points in 2016.
The state with the second-highest share of seniors is Florida. That is another state starting to trend toward Biden. He now leads in the RCP average of polls by 3.5%. Last month the polls showed they were both essentially tied.
So, the big question is, why are seniors abandoning President Trump? According to the polls, the most crucial factor is COVID-19. According to the CDC, the infection fatality rate for someone aged 70 or older is 200 times higher than for a 50-year-old. Seniors have to take COVID-19 very seriously, and, according to the polls, they are very critical of President Trump’s perceived mismanagement of the health crisis.
The polls also see Biden picking up support from other 2016 Trump voters in suburban white women and college-educated male and female voters.
The Economy Is Continuing To Slow
The stock market continues to do well, but the part of the economy that is not made up of publicly traded companies—Main Street vs. Wall Street—is continuing to suffer because of the pandemic. The Main Street part of the economy will not recover until after a safe and effective vaccine is released and at least 60% of the United States is vaccinated. Very likely, that will not be until the end of 2021.
Unemployment is going to stay stubbornly high for a long time. Most of the businesses that have reopened after the lockdown have already rehired many of their workers.
Without another round of stimulus, companies from airlines and energy firms, to bars and restaurants are considering layoffs this month of over 100,000 employees.
With over 29 million workers still receiving unemployment benefits, the U.S. economy is only about half-recovered. Most economists now think the next phase of the recovery will be more challenging and slower.
With Democrats and Republicans deadlocked on the stimulus talks that each side says it wants, it may be a colossal mistake for politicians to think their job is done. A lot of voters may decide on November 3 that their job is done!
The Federal Reserve Chairman Jerome Powell warned last week of longer-lasting economic scars and a weak recovery if Congress doesn’t “go big” with more government aid. He also said that more stimulus would not be a problem for the economy in the Fed’s opinion. Even Treasury Secretary Steven Mnuchin told Congress at a recent hearing that small businesses and the unemployed severely needed another round of stimulus.
If Congress doesn’t act soon, analysts predict that the economy will slow to mid-single digits in the fourth quarter, after roughly 30% plus growth in the third quarter.
That could make the economy very vulnerable if another shock like a large winter increase in Coronavirus cases and deaths occurs.
Fed economists believe that waiting until after the election is waiting too long.
On Main Street, nearly a quarter of restaurant and hospitality jobs are gone. State and local government employees, including police, firefighters, EMT workers and teachers, lost jobs in September. This is just the start of layoffs for many states, cities and municipalities running low on funding because of reduced tax revenues and the costs of dealing with the pandemic.
The National Restaurant Association warned that over 40% of restaurants would close in the next six months without more aid. The American Hotel and Lodging Association cautioned that thousands of hotels can’t pay their mortgages right now, putting all of them in danger of closing.
Overall, 21% of small businesses say they will have to close permanently in the next six months if there isn’t more congressional help for small businesses, according to the National Federation of Independent Businesses.
Most economists believe it will take until the end of 2021 to recover all of the economic output losses. They also project it will take at least three years to recover all the job losses.
The Lack Of Congressional Action On More Stimulus May Be Why Wall Street Is Backing Biden
The Federal Reserve, most Wall Street banks, and even most conservative economists are supporting a sizeable congressional stimulus bill in the $2 billion range.
However, a small group of Republican congressmen and senators have suddenly decided that they are now “fiscal conservatives” and are blocking the stimulus legislation supported by President Trump and Secretary Mnuchin.
What HYPOCRISY! These are the same Republican congressmen and senators that have voted for trillion-dollar-plus deficits each of the past four fiscal years so they could bring home the “bacon” to their states and reward their political contributors. They also voted for the $3 trillion stimulus program a few months ago. Now they’ve decided that they are fiscally responsible?
Is A Biden Victory Priced Into The Stock Market?
In speaking last week with several fellow Wall Street investment analysts, almost all agree that the stock market has priced in a Joe Biden victory. That means that if Biden wins, and the country is not tied up in the courts over questionable election results, we shouldn’t see a lot of volatility or declines in the stock market after the election.
There is also a consensus among analysts and economists that if Biden wins and the Democrats take the Senate, the Democrats will quickly pass in February 2021 an extensive $2 trillion-plus COVID-19 fiscal stimulus package. After that, it is believed they will also pass a $2 to $3 trillion infrastructure project to rebuild America’s neglected infrastructure. This could create 7-10 million jobs and put a lot of the currently unemployed back to work again. It will also indirectly support increased taxes for state, local and federal tax revenues.
Goldman Sachs’ Chief Economist Jan Hatzius said last week if Biden wins and the Democrats take the Senate, “all else equal, such a blue wave would likely prompt us to upgrade our economic forecasts. This blue wave would sharply raise the probability of a fiscal stimulus package shortly after the January 20 inauguration.”
He also cited Biden’s longer-term spending plans for infrastructure, health care and education. He believes Biden’s policies would result in substantially easier U.S. fiscal policies, and a reduced risk of needless trade escalation, especially with our allies in Canada, Mexico, and Europe. He believes this would provide a firmer global growth outlook and could largely offset any longer-term tax increases on corporations and ultra-wealthy individuals. Most analysts don’t expect any tax legislation to pass until after the 2022 mid-term elections.
Many analysts, including Moody’s Analytics, found that Biden’s economic proposals to bring back the economy in the first two years could create 7.5 million new jobs over their analysis of President Trump’s financial plans. Moody’s projected that the economy would return to full employment in the second half of 2022, nearly two years earlier than the Trump economic plan.
Why Is Wall Street Donating Five Times More Money To Biden Over Trump?
President Trump promises investors more tax cuts, less regulation, a higher stock market and—MORE WINNING.
Yet Wall Street investors and many financial professionals are donating staggering amounts of campaign contributions to Joe Biden.
According to OpenSecrets, a firm that tracks political donations from the securities and investment industry, they have contributed $51.1 million to Joe Biden vs. only $10.5 million to Donald Trump. Even the real estate industry has given far more money to Biden than Trump.
Most analysts agree that President Trump can be credited for three significant accomplishments:
- The Trump Tax Cuts
- Regulatory reform and excess regulatory rollbacks
- Conservative judges on the Federal Courts and the Supreme Court
But because of the Coronavirus economic crisis and the current economic slowdown, Wall Street believes what is needed to bring the economy back right now (while waiting for a safe and effective vaccine) is substantial government aid to rebuild our infrastructure, put Americans back to work, and competently start to manage a national plan to control COVID-19.
The majority consensus of analysts on Wall Street does not think either President Trump or the Republicans in Congress are up to the job facing the nation right now. They seem to have an attitude of “what have you done for me lately, and what can you do for me now.”
For me—I JUST WANT THE ELECTION TO BE OVER!!!
How Should An Investor React?
Stay invested in the stock market! If you looked at the historical stock market performance charts when there were similar fears over the SARS virus and the MERS virus, they were all short-lived, and investors were rewarded for staying in the stock market.
The same will happen no matter who wins the election. In modern times, there has never been a correction (defined as a 10% drop in the market) after a presidential election − not even after President Obama’s election win during the height of the 2008-2009 recession.
Although the economy is starting to slow, the overall U.S. economy is still growing and expanding.
As the great investor Warren Buffett has said, “Patience is always the friend of the investor.”
NOTE: This report is authorized for distribution to clients
Paul Dietrich, Chief Investment Strategist, B. Riley Wealth Management
Paul Dietrich is focused on managing investments for private investors, retirement funds, and private institutions throughout the United States. He also serves as a frequent on-air commentator. He regularly contributes market analysis to business and financial media, including CNBC, Fox Business, Bloomberg TV, CNN, The Wall Street Journal, Yahoo! Finance, Reuters, and The Washington Post.
Information and opinions herein are for general use; are not unbiased/impartial; are current at the publication date, subject to change; may be from third parties, and may not be accurate or complete. Past performance is not indicative of future results. This is not a research report or solicitation or recommendation to buy/sell any securities. B. Riley Wealth Management is not engaged in rendering legal, accounting, or tax preparation services. Opinions are the Author’s and do not necessarily reflect those of B. Riley Wealth Management or its affiliates. Investment factors are not fully addressed herein. For important disclosure information, please visit www.brileywealth.com/legal-disclosures.