US election: there’s a long, long way to go
12 Aug 2020
Terence Moll , Head of Investment Strategy

Joseph Rodinette Biden, 77. Donald John Trump, 74.

It's hard to get excited when confronted by characters like these. They’re both elderly white men who’ve undergone extensive cosmetic overhauls and forget the most obvious things. Yet that’s the choice Americans will face on 3 November.

Right now, the polls favour Biden, with about 50% support, versus Trump on 42%. Trump has fallen in the polls since March, probably due to his flubbed response to COVID-19 and the surge in unemployment across the country.

According to the Financial Times, if the election was today, Biden would sweep the electoral college with 298 votes, compared to Trump on 119. The polls say the Democrats would keep control of the House of Representatives and might even claim the Senate.

Moreover, Biden’s choice of Kamala Harris as running mate should help his cause. She’s smart and tough and will help to broaden his support base.

But the Democrats should leave the champagne on ice for now. There’s a long way to go yet.

The race is wide open

While the media tends to focus on the strengths, weaknesses and foibles of the candidates, that’s only part of the story. Research shows that incumbent presidents tend to win when the economy is not in recession and is growing in the medium term, there has been little social unrest, there have been no major scandals, and the US has had foreign or military successes. None of these factors look Trump-positive.

And yet… 2020 has been the Year of the Coronavirus. It will surely dominate the election campaign and may even decide the outcome.

New COVID-19 cases in the US are still high in absolute terms but have been falling for three weeks. Case numbers will probably continue marching down over September-October, as the virus burns out in areas that were hit hard through the middle of the year, like Florida, Texas and Georgia. And our research says there will be no second wave in areas that have been hammered by coronavirus. New York is safe. (So, for that matter, is London.)

By November, the virus will look tamed and the economy will be recovering strongly, with unemployment falling fast. Could Mr Trump present this as a personal victory and canter back into the White House? Quite likely. We think the US presidential race is still wide open.

Hamburger vs avo on toast

This election will be one of the most extreme in many years. The Republicans and Democrats have been diverging for decades, with the middle ground between them disappearing. The 2020 campaign looks like hamburger versus avocado on toast.

The hamburger side is Donald Trump. Over the last four years he’s followed a conservative, nationalistic, low-taxes policy. Some businesses approve of him, others are scared by recent social unrest and his aggressive foreign policies, most notably towards China. We don’t expect any major changes if he stays in power.

Biden is the avo on toast. He’s put forward a broadly centrist economic platform, trying to bring together and mobilise the diverse groups who tend to vote Democrat. He talks of higher taxes (reversing half of the Trump tax cuts), more spending on infrastructure, greener energy policies, better healthcare, lower inequality and more balanced foreign policies and trade.

On the face of it, Biden’s policies look unfriendly towards business. They might raise costs and lower earnings for firms overall. His hope is that if he can make the US economy more sustainable, calm social unrest and improve the US’s position in the world, that business and employment would do well in the long run.

Besides, his platform is in part a wish list… much of what he talks about would be unlikely to materialise. That’s the nature of politics.

What does all this mean for our investments in the USA? Not much. Trump would be better for oil and gas companies and defence, while sustainable energy and infrastructure might do better under Biden. But US companies as a whole should do just fine, no matter who wins. For long-term investors, this election is a yawn.

Why is that? The key reason, as we’ve often stressed, is that the US economy is like a supertanker. It’s driven by fundamental factors like productivity growth, technology and demography, and politics doesn’t influence these too much. Provided the US gets through its current coronavirus surge, which we think is already coming to an end, for most firms it’ll be business as usual for the next four years.

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