The Finance 202: Stock market investors are increasingly focused on the election. History shows it may not matter.

William Arsn

Some analysts warn against overthinking it. By this logic, President Trump’s reelection would prove bullish for stocks, as he would continue to push for cutting taxes and regulations, whereas Joe Biden has proposed hiking taxes by $4 trillion and tightening industry oversight.

Others say a victorious Biden would more than make up elsewhere what he costs companies in higher taxes. That is, the Democratic candidate would bring the stability that corporate chiefs favor, remove the specter of the trade wars that has rocked the market in the Trump era, and provide more emergency spending from Washington.

Here’s another take: For the broader market, it doesn’t really matter who wins. The results of presidential elections are merely one input among many shaping how investors value companies. History suggests there’s something to this theory. This SunTrust chart of the S&P 500 over the past 75 years shows it’s impossible to eyeball changes in presidential power based on the performance of the index:

Keith Lerner, chief market strategist at Truist/SunTrust Advisory, puts a finer point on it. “Elections matter, but other factors matter more,” he says. “From the market’s perspective, progress or lack thereof on [coronavirus] vaccines is going to be more impactful than who’s in the White House over the next year — or several years.”

Investors looking for the election results to offer a preview of tax policy may not gain useful insights. 

Indeed, “markets have, counterintuitively, produced better returns, on average, and been more consistently positive in years in which taxes have risen,” a SunTrust analysis found.

To that end, the analysis notes, consider the market saw its strongest decade of gains in the 1950s — when both individual and corporate tax rates were at or near their highest — thanks to the postwar economic boom and low stock valuations going into the period. “Conversely, despite having among the lowest average tax rates of the past 50 years, the 2000s generated the worst stock market returns and economic growth in the modern era,” per the note.

Goldman Sachs analysts acknowledged the complexity confronting investors as they weigh various election outcomes. While a Democratic sweep of the White House and Congress would likely usher in higher taxes that would bite corporate bottom lines, “given the high level of uncertainty about the broader economic outlook, these shifts may be harder to isolate than in a less volatile market,” they wrote last month. 

It is no easier to distinguish winners and losers among specific sectors.

The financial sector, for example, would seem to be among the first cut of winners under a second Trump term. Their regulators “will likely feel they have a second lease on life, and a limited amount of time to finish their to-do lists,” Capital Alpha’s Ian Katz wrote in a note this week. “And those regulators who leave will probably be replaced by Trump appointees who are more aggressively deregulatory, or even libertarian.”

Yet industry stocks have offered the same returns under Trump as they did under his predecessor, in both cases underperforming the broader market:

Low interest rates and weaker economic growth suggest the sector will continue to underperform, regardless of who wins the White House, Lerner says.

The takeaway for long-term investors in the broader market, Capital Group strategists wrote in a note last month: “Moving to the sidelines would be an understandable approach for anxious investors who prefer to wait and see what happens. As history has shown, however, that is often a mistake. What matters most is not election results, but staying invested.”

Market movers

Hurricane Laura barrels toward heart of oil refining.

The powerful category 4 storm has analysts more worried: “Hurricane force winds will extend up to 60 miles from the storm center, the NHC said, encompassing an area with a half-dozen large oil refineries and natural-gas processing plants. Cheniere Energy Inc, the top exporter of U.S. liquefied natural gas, evacuated a plant near the storm’s path, and Cameron LNG also closed its Louisiana LNG export plant,” Reuters’s Erwin Seba reports.

“The ports of Lake Charles, Louisiana, and Houston, Beaumont, Port Arthur and Orange, Texas, closed to vessel traffic on Wednesday, the U.S. Coast Guard said. Six oil-processing plants that convert nearly 2.33 million barrels per day of oil into fuel, and account for about 12 percent of U.S. processing were shut down on Wednesday.”

  • Oil nears five-month high. “Oil held near a five-month high as Hurricane Laura disrupts production and refining in the U.S. Gulf,” Bloomberg’s Ann Koh and Alex Longley report. “While the hurricane’s path shifted away from refineries and ports in the Houston area, traders are waiting to assess the full extent of the damage and its potential impact on fuel consumption.”

Jay Powell to outline Fed’s new approach to inflation, employment. 

Investors will be glued to the Fed chair’s speech from Jackson Hole, Wyo. “In the backdrop is an economy that’s vastly different from the one for which the Fed thought it was planning,” Rachel Siegel reports. “But experts say the review ultimately speaks to some of the most pressing questions of this new world, namely whether a different approach is needed for the Fed to achieve its ‘dual mandate’ of maximum employment and stable prices…

“Many economists argue that a strong recovery will depend on inflation growth beyond 2 percent. The Fed’s policy review is widely expected to move toward average inflation targeting, which would allow for some overshoot of the 2 percent target to balance out periods when inflation skirted below.”

S&P 500 and Nasdaq hit more records: “The broader market index advanced 1 percent to 3,478.73 while the Nasdaq popped 1.7 percent to end the day at 11,665.06. The Dow Jones Industrial Average gained 83.48 points, or 0.3 percent to end at 28,331.92,” CNBC’s Fred Imbert and Maggie Fitzgerald report.

“Shares of Salesforce surged 26 percent — their biggest one-day gain ever — after the software company posted blowout earnings after the bell on Tuesday.  Salesforce will be added to the Dow at the end of August, S&P Dow Jones Indices said Monday. The changes are driven by Apple’s coming stock split, which will reduce the technology weighting in the price-weighted average.”

Weekly jobless claims out this morning expected to remain high. “The number of Americans applying for unemployment benefits likely held near one million last week, an indication that companies continue to lay off workers even as the broader economy shows signs of recovering from the economic downturn,” the Wall Street Journal’s Sarah Chaney reports. 

“New applications for unemployment benefits have stagnated around one million a week recently, significantly lower than a peak of near seven million in March but well above the pre-pandemic levels of about 200,000 claims a week. There are signs the labor market is healing, albeit more slowly than in the spring.”

Latest on the federal response

Mark Meadows says Trump may take executive action to avoid airline furloughs.

The White House chief of staff also said he’s not optimistic about a stimulus deal: “Meadows’s comments in a Politico Live event came a day after American Airlines said it would furlough or lay off some 19,000 workers starting in October unless the federal government steps in with billions more in relief for struggling airlines,” Erica Werner, Lori Aratani and Jeff Stein report.

“It was unclear how the administration could act on its own to extend aid to airlines or take steps that would prevent furloughs. Meadows did not elaborate and the Treasury Department did not immediately respond to requests for comments.

Where relief plan talks stand: “Senate Republicans have been convening daily conference calls, often joined by Meadows and Treasury Secretary Steven Mnuchin, aimed at trying to reach consensus on a bill they could potentially try to bring up before Labor Day. Sen. Ron Johnson (R-Wis.), who had been a holdout on a previous Senate GOP bill, said in an interview that he was supportive of a ‘targeted’ bill with a price tag below $1 trillion.” Democrats are unlikely to support such a plan.

  • That means the focus is on September: There’s a Sept. 30 deadline “when government funding expires and many agencies will begin to shut down if Congress does not act. That deadline will force legislative action of some kind that could become a vehicle for passing some new covid-19 relief provisions. And that deadline comes less than six weeks before the November elections.”

Coronavirus fallout

From the U.S.:

  • At least 5,788,000 cases have been reported; at least 176,000 have died. 
  • Controversial change in testing guidelines came from White House task force: “An abrupt shift this week in government testing guidelines for Americans exposed to the coronavirus was directed by the White House’s coronavirus task force, alarming outside public health experts who warn the change could hasten the disease’s spread,” Amy Goldstein and Lena H. Sun report.
  • Justice Department eyes possible probe of Democratic states’ handling of nursing homes: “The Justice Department requested information on covid-19 in nursing homes from the Democratic governors of four states while asserting that their orders during the pandemic ‘may have resulted in the deaths of thousands of elderly nursing home residents’ — a move that drew some questions as being politically motivated,” Matt Zapotosky reports. The four states are New York, New Jersey, Michigan and Pennsylvania.
  • Researchers find Maine camps prevented spread: “As school and public health officials look for ways to reopen classrooms safely throughout the country, a potential road map emerges from the experience of four sleep-away camps and the extensive measures they adopted to prevent spread of the coronavirus among more than 1,000 campers and staff members,” Lena H. Sun reports.

From the corporate front:

  • Abbott wins approval of cheap, rapid antigen test: “Abbott Laboratories said on it won U.S. marketing authorization for a covid-19 portable antigen test that can deliver results within 15 minutes and will sell for $5,” Reuters’s Carl O’Donnell and Mrinalika Roy report.
  • Mall giant Simon is snapping up bankrupt retailers: “In recent weeks, Indiana-based Simon snapped up bankrupt retailers Brooks Brothers and Lucky Brand, and bid on another, J.C. Penney,” Abha Bhattarai reports. “Analysts say the succession of deals gives Simon a roster of iconic brands for rock-bottom prices and steady rent. Others see an act of desperation that will only delay the inevitable demise of dozens of flailing malls across the country.”
  • Saks owner Hudson’s Bay drops financing plan: “Hudson’s Bay Co, the owner of luxury department store Saks Fifth Avenue, has ditched its plan to raise up to $900 million in debt after prospective investors requested a higher interest rate than the company was willing to pay …,” Reuters’s Jessica DiNapoli reports.

Around the world:

  • UNICEF finds nearly 500 million children are struggling to access school: At least 463 million students around the world have no access to remote lessons provided by digital or broadcast means because families don’t have the ability to receive them or governments are not providing them, a new UNICEF report says,” Valerie Strauss reports.

Money on the Hill

U.S. Chamber poised to endorse a slate of Democrats, prompting internal uproar. 

The big business lobby’s move comes as it tries to stay relevant amid shifting political winds. “The U.S. Chamber of Commerce is poised to endorse nearly two dozen freshmen House Democrats for reelection, triggering a revolt within the right-leaning organization and drawing fierce pushback from the group’s powerful GOP donors,” Politico’s Alex Isenstadt reports. 

  • A break with history: “The decision represents a sharp departure for the traditionally conservative Chamber, which has spent over $100 million backing Republican candidates during the past decade, and it threatens to further complicate the party’s prospects in the November election while driving a split in the business community.
  • Board resignations possible: “Chamber leaders — including President Suzanne Clark, Chief Executive Officer Tom Donahue and Executive Vice President Neil Bradley — have been pushing the proposal ahead of a Thursday committee vote to finalize a slate of 2020 endorsements. But the group’s donors and members are up in arms, with some threatening to pull funding and others openly venting their frustration. Some are raising the prospect that Chamber board members will quit in the weeks to come.”

When superpowers collide

TikTok CEO abruptly resigns amid political pressure of possible ban.

Kevin Mayer was only in the role for three months: In a letter to employees Wednesday, Mayer said ‘the political environment has sharply changed’ since he accepted the role in May, and that a new resolution for the company is expected soon,” Rachel Lerman reports.

“Trump issued an executive order earlier this month announcing TikTok would be banned in the U.S. beginning the week of Sept. 20 because of national security concerns due to the company’s Chinese ownership … Mayer’s departure throws more uncertainty into the mix for the embattled TikTok, which has been a high-profile example of escalating tensions between the U.S. and China. Mayer’s hiring was a key move in TikTok’s public relations strategy to appeal to U.S. regulators as an American friendly company.”

Pocket change

NBA playoffs games postponed as players strike.

Athletes have lost patience with the pace of change amid social unrest: “The NBA’s restart inside a restricted bubble at Disney World, which has proceeded smoothly for more than a month without any positive novel coronavirus tests, came to a screeching halt when the Milwaukee Bucks refused to take the court for a playoff game against the Orlando Magic to protest the police shooting of Jacob Blake in Kenosha, Wis,” Ben Golliver reports.

“The league announced the cancellation of all three games scheduled for Wednesday as a result, and a meeting of NBA players later Wednesday night cast doubt on whether the postseason would continue at all. The unprecedented decision to postpone the games was quickly followed by a similar decision by the WNBA, which postponed three scheduled games across the state in Bradenton, and by teams and players in numerous other professional sports.”

Media companies think college football’s cancellation might be a good thing: “A growing number of analysts and insiders are reaching a startling conclusion: While the NFL and its sky-high viewership may be critical to networks as marketers look to unleash their budgets on holiday shoppers, the scrapping of the college Division I football season actually might come with as many silver linings as drawbacks — maybe even more,” Steven Zeitchik reports.

“The idea upends common wisdom about the pandemic, which holds that cancellations of any kind are bad for business. And it can seem counterintuitive. But conversations with industry experts and a dive into the numbers highlights a dirty secret: Buying the rights to college games has become so expensive that sometimes networks are better off if the games aren’t played at all.”


  • Fed Chair Jerome Powell virtually headlines the Kansas City Fed’s annual Jackson Hole Economic Policy Symposium
  • The Labor Department releases the latest weekly jobless claims
  • Dollar General, HP, Abercrombie & Fitch, Ulta Beauty and Dollar Tree are among the notable companies reporting their earnings

The funnies

Bull session

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