06 November 2020

Donald Trump did it his way.  Not with the style of Frank Sinatra – it was more Sex Pistols.

Here I try and make sense of some of what has happened this week, and what a Biden presidency might mean for investors.

In a lovely article last Saturday, Jonathan Freedland of the Guardian captured the very bizarre impact of Donald Trump on people who shouldn’t really care, and should know better:

“A friend called to say he’s been having anxiety dreams about Donald Trump”

Another “highly rational man with a forensic intellect” found himself praying for Biden.

Yet another woke in the night to check the latest polls, says Jonathan.

None live in the US, nor are US citizens.  But Trump has caused palpable anxiety around the world.

I woke up at 3am on Wednesday morning and couldn’t resist putting on the World Service, and the BBC told me that, after early results, Trump was now the favourite!  Before going to sleep The Economist had informed me that the odds were 95% in Biden’s favour.

If Trump had been radiating angst the previous Saturday, angst was now going to go nuclear.

The UK market opened first on Wednesday, at first falling sharply, then doing a handbrake turn before 9am and whip-sawing upwards for the rest of the day.  This trend continued when the US markets officially opened on Wednesday afternoon (our time).

“US stocks surge” proclaimed the headlines as America woke up, despite the fact that no one had much of a clue on the Presidential result at that point.

One commentator said it’s because investors care more about lower taxes than higher government spending.  The markets had been going up ahead of the election because “The Blue Wave” guaranteed money being pumped into the economy.  But with the tide seemingly going out for the blue wave, apparently that didn’t matter anymore.  There was a new excuse to help explain the unexplainable – it was all about taxes.

The truth was that none of this made sense if you tried to rationalise it.  In a mania, an inherently emotional market, the only thing which drives the market is… er… emotion.

Some of the market numbers highlight how flaky the rise was on Wednesday 4th.

For example, the US stock market (S&P 500 index) went up 3.12%.  Yet there were 5 stocks down for every 6 that went up – hardly convincing.  The small cap, transports, utilities and Value Line indices all closed down for the day.

The tech-heavy Nasdaq index went up even more on Wednesday, a whopping 4.21%.  Clearly none of the enthusiasts had spotted that on 20th October Google was charged with anti-trust violations by the US Justice Department, much as we suggested they would for some months.  This is the beginning of years of challenges to big tech, from both within and without the US.

By Thursday, 5th November, it looked much more likely that Biden would win.  In a mania, all news is good news.  So the S&P 500 went up again, 1.93%, and the Nasdaq 2.22% – even though the policy of the Democrats is to clip the wings of big tech, who have driven the stock market higher for a decade.  Hmmm.

Biden Presidency And Re-Building The Economy

Biden as President will likely put pressure on big tech (too dominant) and pharmaceuticals (too expensive).

More importantly is how a big push in government spending (fiscal stimulus) could radically alter the investment outlook, and trigger a rapid swing from investors favouring Growth stocks (like tech) to Value stocks (cyclical businesses).

Much will depend on whether the Democrats also have a majority in the Senate, the upper house.  If not, substantial reforms will be blocked by Republicans in the Senate.  If the Democrats do control both houses, long overdue infrastructure building can begin.

We will have a very close eye on these trends in the days and weeks ahead.