At the time of writing, three days after the US election we don’t know who the victor will be. The election has showed the deep divide in the US highlighted by two very different characters, resulting in different ways of thinking, governance and ultimately, way of life. The difference in state rules for the US election is bewildering and clearly doesn’t help the process. Considering the US is often criticising the election process in other countries, the comments from the sitting President are not positive for the reputation of the US election process, irrespective of the validity. I wonder if the President would have suggested fraud if he was leading?
Anyway, we didn’t make any significant changes to our portfolios in the run up to the election. We generally don’t make changes based on binary outcomes where we have no idea of the outcome. However, a couple of our favoured sectors for equity investment are clearly going to be influenced by the result of not just the Presidency but also Congress. We therefore arranged for two calls this week with Healthcare specialists to better understand the outlook.
The market reaction was clear with our key technology and healthcare holdings up between 3% – 6% in the two days following the election. The potential for a Biden Presidency and split Congress is seen as a positive market result as it limits the short-term extreme outcomes for healthcare, such as repealing Obamacare (there is a Supreme Court hearing due to start next week), and technology, such as aggressive anti-trust measures. It will also question some of Biden’s plans for higher taxes and a greener economy without a Democrat majority in both houses of Congress. Irrespective of whether Trump or Biden win, we’ll be keeping our healthy exposure to healthcare and technology, especially over the next six months or so where it’s likely that the strong will get stronger.
It’s still too early to be moving this allocation to ‘value’ stocks that appear ‘cheap’.
The President will have a challenging next four years in office to try and reign in US government spending. The excellent economist Brian Wesbury at First Trust (most economists are far from excellent but Brian bucks the trend) issued an interesting note at the start of the week highlighting that non-defence spending was 40% larger than its highest ever level in 2009.
The “federal government spent $6.55 trillion in the Fiscal Year ending Sept 30th 2020, up 47.3% from FY2019. In total, the federal government spent 31.2% of GDP, the highest share since 1945.” Clearly some of this spend has been essential and while it can be borrowed at such cheap levels, there is an argument to keep going. However, what happens if the US does another lockdown next year and the year after? ‘Big government’ is usually hugely inefficient and the US, as other countries will as well, will have to walk the tightrope between supporting consumers and businesses while not creating a longer-term reliance and excessive burden for future generations.
If Biden does win, we’ll see if he looks to improve relations with the Chinese and EU. We’re not hopeful in respect of the Chinese as Biden will likely attack China in respect of climate change and human rights to add to Trump’s list of trade protectionism.
We invest in the US despite of the politics not because of it and that won’t change.
Thanks for reading and