This week the S&P opened at 3,280 and closed at 3,300. With the market heading into the fourth quarter and elections looming, risk is the only key word. The United States is experiencing an ever more polarized political environment. The presidential and congressional elections are highly uncertain. The tear of society across the country is no less profound than it was in 2016, and even the epidemic has not improved the polarizing mechanisms of bipartisan communication. In 2016, U.S. stocks were expected to plunge if Hillary Clinton lost. This time, it’s expected to be similar if Donald Trump loses.
In contrast to the 2016 election, two of Trump’s three major policies — tax reform, healthcare reform, and immigration — are directly related to the economy. Expectations for tax reform dominated Trump Market in 2017. The victory of tax reform at the end of 2017 set the course for the market. Even if health reform falls by the wayside, immigration reform remains a mess and trade frictions take a toll, economic success still dominates.
Regrettably, in the political environment of 2020, the economic policy agenda of the candidates of both parties are relatively vague and they focus more on ideological battles. The current election developments are not good news for the market. In the short term, the outcome will have little impact on the direction of markets. If the ownership of the White House in 2016 is far more important to the economy than the Fed, then markets in 2020 and beyond will follow the baton of monetary policy.
At three days of congressional testimony, Federal Reserve Chairman Colin Powell reiterated his stance on ultra-loose interest rates based on conservative expectations. He acknowledged that interest rate policy could not be more aggressive and that a more explicit and effective fiscal policy was needed to stabilize the economy. Markets interpreted the comments as a rejection of negative interest rates. The manufacturing PMI came in at 53.1, indicating continued expansion above 50. US businesses ended the third quarter with solid results and a rapid recovery in aggregate demand, contributing to a further recovery in output and employment, IHS chief economist Said，the survey data showed a solid rebound in manufacturing in the third quarter. Rail traffic continued to rise. Weekly jobless claims have stayed below 900,000 for the fourth straight week. Second-hand house transfer and new home sales continue to hit a 14-year high (higher than the level before the subprime crisis). Ultra-low mortgage rates and the massive migration of people from the cities to the suburbs triggered by the outbreak are fueling demand which will maintain the market hot. High-yield bond issuance in the US has hit a record high, with cumulative issuance in less than three quarters surpassing the record of $329.6bn set in 2012.
The CDC recommends canceling mass events during Halloween, which is bad news for department stores. The news came too late. Stocks were ready, so miserable sales seemed inevitable. FDA issues standards for emergency vaccine use authorization. President Trump said at a news conference that when Pfizer (NYSE:PFE), Johnson & Johnson (NYSE:JNJ) and Modena (NASDAQ:MRNA) these great companies have developed vaccines, they’ve done tests and everything else, why would the FDA add more process? The White House clearly wants approval soon. However, New York Governor Cuomo says his state will set up its own independent task force to approve the COVID-19 vaccine. Meanwhile, durable goods orders fell sharply, rising just 0.4 percent at a fixed rate in August, below expectations and well below 11.7, 7.7 and 15 in the previous three months. Truck traffic continued to fall. The dangerous news, of course, always comes from elections. Tax filings show Trump has paid an average of less than $1,000 a year in taxes over two decades. The Senate has given the Justice Department 80 pages of documents calling for an investigation into corruption by Joe Biden and his son while he was vice President.
Comparison of Economic policies between Trump and Biden campaigns
In the latest Moody’s poll of election results, Trump and Biden are close. Projections show Democratic Joe Biden with 279 electoral votes and Republican Donald Trump with 259. The 20-vote gap is not statistically significant. Congressional election projections tell a different story, with Democrats winning the House by a landslide. The model alone predicts a 20% chance that Democrats will control both houses of congress and the White House. Democrats have a 40% chance of controlling the House and the White House. Republicans have a 35% chance of controlling the White House, the Senate with 35% possibility, and both the White House and the Congress with 5% possibility.
The chart below compares Biden’s economic policies with Trump’s.
| Trump | Biden | |
| Federal agencies | Strengthen direct Decision-making from the White House | Strengthen the role of agencies in policy consultation and decision-making |
| Epidemic | State control is the leading force, do not use DPA | Federal leadership for prevention and control, active use of DPA |
| Immigration | DACA & Control of immigration | Anti-DACA & Strengthen the immigration |
| Health | Lower drug prices and cut Medicare spending | Lower drug prices, lower Medicare age |
| Tax | Tax cuts | Tax increases |
| Labor protection | Reduce administrative oversight | Support the unions and raise the minimum wage |
| Diversification | Blue life matter & State dominated | Black life matter & Federal domination |
| Financial regulation | Reduce administrative oversight | Strengthen the supervision |
| Trade | America first, raise tariffs and decouple from China | Rely on WTO, promote global trade, return to TPP |
| Infrastructure | Traditional industries | Green environmental protection |
| Defense | Weaken NATO and strengthen arms | Strengthening NATO, disarmament talks |
| Budget | The tax cuts led to a large increase in the deficit | Spending led to a large increase in the deficit |
| S & T | Antitrust against high-tech companies | Antitrust against high-tech companies |
Moody’s forecasts that Mr. Biden’s economic policies will raise the deficit by $3.2 trillion over 10 years, 15% of current GDP; Trump’s policies will increase the deficit by $1.2 trillion, 6% of GDP. As social polarization continues to worsen and federal and state rivalries grow, the eventual impact on the national economy will be muted no matter who is elected.
The epidemic and the election
The epidemic is far from over. Europe always seemed to be one step ahead of the epidemic. After two to three weeks of confirmation of the second deterioration in Europe, we see a rebound in the number of newly diagnosed cases in the United States. As the fall flu season approaches, the combined impact of influenza and COVID-19 will be magnified significantly. This week is the last jobs data to be released before the election, which is neutral for the economy and certainly not a plus for The Trump campaign. In terms of economic restart, the performance of different regions and industries is not consistent. Supermarkets have been the least affected, air transport, theatres and cinemas are still struggling, restaurants and hotels have struggled through the summer and are under pressure from both the epidemic and the industry cycle. But when summed up in the market, it appears relatively stable. The bond market, in particular, has been remarkably calm against a backdrop of microeconomic activity, macro data and continued stock market corrections. The economy as a whole is running relatively smoothly.