As was widely anticipated given the record amounts of mail-in voting, Election Day ended without a clear presidential winner. A decisive lead was necessary to make the call, and disparate requirements across battleground states for both when mail-in ballots must be received and when they can begin to be counted have made for a prolonged process necessary to determine the outcome definitively. In the absence of an early and undeniable blue or red wave, American patience is being tested as vote counts trickle in. We understand the anxiety this can bring. Our Wetherby team is closely monitoring developments at both the federal and state levels and is prepared to guide our clients through any election outcomes.
Markets, however, have been less patient. They have rallied this week as the risks of a prolonged chaotic election process have diminished, and the prospect of a blue wave that would ease the path to higher taxes and increased regulations has given way to the likelihood of a divided government. In the near term, market calm may be short-lived, given the markets’ distaste for uncertainty. Until the final results are certified and the next administration begins, we may see ups and downs as election outcomes may be contested and predictions of what to expect fluctuate. Even if overall markets are relatively stable, we may see divergence as some sectors rally and others fall based on expectations of what policies may be enacted.
From an investment perspective, it is policy, not politics, that matter. As of this letter’s writing, the continuing rally as the election drags on seems to indicate broad market support for a scenario where Biden becomes the nation’s 46th president within a split government. Among other things, this may reflect the idea that while a Republican-led Senate may not endorse a particularly aggressive fiscal stimulus policy to support the economy, it also would reduce the likelihood of tax hikes and increased regulation under a Biden administration.
Most importantly, the party affiliation of the president has had little long-term impact on market performance.
MARKETS TEND TO PERFORM POSTIVELY OVER THE LONG TERM REGARDLESS OF POLITICAL LEADERSHIP: 1937-PRESENT
We design client portfolios to weather market reactions to major events, with an eye towards the future beyond the moment’s restlessness. As we await the final election results, we will continue to look for market opportunities in the near future while adhering to our long-term strategies. We will continue to rebalance portfolios as needed and take proactive steps that would support our clients’ stated investment goals.
From a wealth planning perspective, a new administration’s policy changes could have a significant impact on individual investors, particularly as it concerns estate and tax planning. The proposals released by Vice President Biden include a proposed increase in income taxes for top earners (income over $400,000 per year) and a decrease in the gift and estate tax exemption amounts (from $11.58 million currently to a proposed $3.5 million). However, in the likely event of a divided Congress, these proposals may be significantly altered in order to reach a bipartisan agreement. Tax proposals are often used as horse-trading vehicles to achieve other, more pressing legislative objectives with members of another party. Accordingly, the proposals we see today may be a far cry from whatever changes ultimately occur. We will remain watchful as the situation unfolds and will guide our clients through any changes to their estate or investment plans that become prudent.
While we are all too aware of the wide-ranging impacts of the election outcome beyond our financial lives, you can remain confident that your Wetherby team is always watching to be sure that no matter what the future brings, we will continue to help you meet your financial goals.
May the rest of 2020 and beyond bring us all calm and good health.