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"When the pressure is released from the markets, there will be a rally to support risk assets."

Deutsche Bank economists in special review ahead of US election: Financial markets tend to show resilience to political events in election years, no matter which party wins. "Election results do not appear to have implications for Fed policy"

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Kobi Yeshayahu

Tuesday, 06 October 2020, 09:08

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In the video: Trump was released from the hospital and returned to the White House (Photo: Reuters)

The year 2020 has so far been characterized by very high volatility in the stock markets, and now, ahead of the US election, volatility seems to be here to stay for weeks to come. Investors have learned this year that much can change in a short time. Rebounding, economic recovery or unexpected event Others could support Joe Biden's chances of winning. On the other hand, any improvement in contagion data along with a faster economic recovery will support Trump's chances of winning.

Deutsche Bank economists have published a review ahead of the US election, trying to analyze candidates' chances and potential market implications .

"We think there is a good chance the House will remain in democratic control but for the Senate the race is very close and our view is that Republicans have a slight advantage in retaining the Senate. The key is that the race is closer and a victory for Biden is not guaranteed, of course, "Deutsche Bank writes.

The possibility of appealing results following a close race is possible and real and therefore the Supreme Court may have critical significance and the expectations in the markets are for high volatility around Election Day when the fear index embodies this.

There are many possible scenarios whether Trump's victory, Biden's, Democrats' perception of the Senate and more.

"The financial markets have shown that in the long run they are resilient to political events. In the short run it is difficult to predict how the markets will react to each of the scenarios when the actual impact of politics on short term markets is lower than prevailing." The economic under Trump and Obama administration has seen GDP grow at similar rates despite very different approaches to taxation and regulation. "

Deutsche Bank further notes that financial markets tend to show resilience to political events in election years no matter which party wins. It is the timing of the economic cycle that determines.

The S & P 500 rose by an average of 9.5% between 1939-2019, regardless identify the president and the party. "

Deutsche Bank believe that volatility will rise as much as we approach the November elections when it may continue even after the elections in the event of an appeal against the results and walking to the Supreme Court decision." End "When the pressure is released from the markets, there will be a rally that will support risky assets."

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Consequences from the choice of each of them.

Trump and Biden (Photo: Gettyimages)

The presidential results also have implications for monetary policy and the long-term interest rate, dominant factors in credit market pricing.

Biden is expected to refrain from harsh criticism of the Fed as Trump expressed during his tenure.

"It does not appear that the election results, no matter who the winner, will have implications for the Fed's policy in light of the economic situation and therefore expect continued interest rate policy and the acquisition plan to continue as usual. Biden's victory along with the Senate becoming a democratic control could widen the deficit. Of $ 2 trillion and upward long-term bond yields. "

Their profit forecast for 2022, taking into account Biden's proposed tax policy, is a 5.5% drop in the aggregate profit of companies in the S&P 500.

"Biden also wants to raise the tax rate on high-income earners to 39.6% and discussions are underway within the Democratic Party on wealth taxation.

In conclusion, "in 2020 the financial markets have shown how resilient they are to various events and that the Fed will do everything in its power to increase and support market liquidity. In the short term political events can cause fear and high volatility in markets but adopting long-term investment management strategy This is challenging. "

Biden's win will hurt companies in the energy and finance sectors

Regarding the effects on various sectors, Deutsche Bank estimates that if Biden wins, "the expectation is that we will see the abolition of the restrictions on drilling of federal lands. New restrictions on drilling and oil exploration could create long-term effects on oil prices and increase it. Antitrust investigations against big tech companies It is expected to continue and attention must be paid to the cabinet members that Biden will be elected in order to get an idea of ​​how far-reaching the changes will be. "

Implications for the investment portfolio: "Companies in the field of energy and finance will see the biggest consequences for regulation in the negative. Competitively, big tech companies and companies in the field of medicine will suffer the most."

Regarding the field of health services, they indicate that Biden will want to reform the field of health immediately. "Although Biden does not support health for all but it does support the gradual reduction of the private sector in the health sector. This reform if passed will lead in the long run to a substantial change in the care the American citizen receives."

Implications for the investment portfolio: "Ceiling reform sooner rather than later but still no precise deadlift and therefore the exact impact on the sector is unclear. In any case the cold Obama legislation has had a positive impact on medical service providers like hospitals and therefore expansion of legislation will lead to leading trends."

In the fight against global warming, "the Democratic candidate has serious ambitions with his party. He supports a $ 2 trillion infrastructure program that will focus on climate change through various initiatives to encourage green energy.

Implications for the investment portfolio: "A $ 2 trillion plan may have seemed ambitious before the Corona era but now seems more necessary than ever. This plan will give a boost to companies in the industrial and materials sector."

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