The political event of the year will be the presidential election on 3 November. While it seems highly likely that Donald Trump will have the Republican nomination, there is much less clarity over who will lead the Democrats. There are currently three frontrunners for the nomination: Joe Biden as the more centrist candidate, and Elizabeth Warren and Bernie Sanders from the left wing of the party. Warren and Sanders are advocating some radical policy changes, including an overhaul to the health care system, breaking up big banks and tech firms, banning fracking, and imposing wealth taxes and higher corporate taxes. Biden’s proposed policies are comparatively moderate, but still include reversing the 2017 tax cuts. Pete Buttigieg and Kamala Harris, two other candidates, are currently less favoured, but worth watching. And it is not yet clear exactly how the late entry of Michael Bloomberg may influence the race for the Democratic nomination. Support can swing wildly during the process – for example, Barack Obama overturned a significant lead in the polls for Hilary Clinton to win the Democratic nomination and ultimately the 2008 election.
We should have a much clearer picture of who the Democratic nominee is likely to be by the end of March, when two-thirds of the primary results (by the number of delegates) are known. The primaries are followed by the respective party conventions, when the candidates are officially selected. Then it’s to the presidential debates in September and October, before the US electorate finally casts its votes on 3 November (see below for a timeline of key events).
US election 2020 key dates
Source: J.P. Morgan Asset Management. As of 25 November 2019.
Who is likely to win? History strongly favours the incumbent: three-quarters of sitting presidents have been re-elected, looking at elections going back to 1932. An incumbent president has never failed to win re-election unless a recession has occurred during their time in office, which perhaps explains the president’s more conciliatory recent tone on trade. But President Trump’s approval ratings are lower than those of other re-elected presidents were at this point in the election cycle.
It is worth bearing in mind that the impact that any president can have on the economy and market depends on their ability to enact legislation. To be able to put in place more controversial policies, control of both the House of Representatives and the Senate is necessary. It is difficult to see President Trump regaining control of the House of Representatives, were he to win. Similarly, it is difficult to see the Senate shift to a Democrat majority. And so a divided Congress appears the most likely outcome. While political gridlock is not an ideal scenario, it may comfort investors to know that it could act as a considerable restraint on some of the more radical proposals on both sides. Regardless of the election outcome, it seems unlikely that the trade conflict with China will be fully resolved – surveys suggest that there remains widespread support among the US electorate to address unfair trade practices (see below).
It is hard to say anything concrete about the likely impact of the election on markets. Historically, S&P 500 volatility has typically been higher in election years than in non-election years, as markets frequently reprice the probability of the future administration’s policies. Markets have also tended to react more positively in the immediate aftermath of the election of a Republican president, as the party’s policies are broadly thought of as more market friendly. But it is important to note that this is by no means a strong rule of thumb, and that other significant geopolitical and economic events may carry more influence over the market’s direction.
US voters who have an unfavourable opinion of China
Source: Pew Research Center (Spring 2019 Global Attitudes Survey), J.P. Morgan Asset Management. Guide to the Markets - UK..Data as of 25 November 2019.