How to prepare your portfolio for Election Day

We look at the current uncertain environment, the expected impact from potential election outcomes, and what investors should do between now and November.

06 Jul 2020


Against a backdrop of an ongoing pandemic, extreme social unrest, economic suppression, and increasing distrust in our shared public institutions, the 2020 US presidential election couldn’t come at a more turbulent time. While we can control our risk management, our portfolios, and our reactions to events, we cannot control the events themselves, nor can we predict the outcomes. Focusing on areas over which we have some control, instead of those we do not, is likely to lead to better results and less angina along the way.

The presidential election will be held on November 3. In an effort to help investors to prepare themselves and their portfolios for the volatility that may accompany the event, we focus on the election's investment implications.

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With President Joe Biden inaugurated and the 2020 election cycle complete, our focus now turns to the new administration’s policy agenda and what it means for investors’ portfolios. For our current views throughout this presidency, visit

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The current economic and market environment

Scott Baker, an associate professor of finance at Northwestern University’s Kellogg School of Management, publishes a widely followed index of economic uncertainty. The accompanying chart, a global version of the index, is a visual confirmation of what many investors have felt over the first half of 2020. High economic policy uncertainty, which historically has been associated with lower economic growth and is believed to increasingly be a cause of large equity price movements, reached dramatic new highs in May (Fig. 1).

Against the COVID-19-induced economic suppression, global interest rates cratered (Fig. 2) and equity markets produced four of the seven largest daily moves in the last 50 years (Fig. 3). The market recovery notwithstanding, we’re not out of the woods yet. Market participants, reasonably, expect volatility to remain high into the fall (Fig. 4).

In this context, large market moves are neither irrational nor unexpected. The good news is that none of the election outcomes—even a Blue or Red Wave—are likely to have as significant an impact on markets as COVID-19. Even so, elections do have consequences. It’s currently too early to be highly confident about the election or policy outcomes, but the result will, on a relative basis, create winners and losers within the equity market, have an impact on tax policy, and shift the drivers of macroeconomic growth and risks to that growth.

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Fig. 1

Some measures of uncertainty spiked to unprecedented levels in May 2020

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Fig. 2

Global treasury rates have plummeted in 2020

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Fig. 3

2020 is shaping up to be one of the most volatile on record

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Fig. 4

Market participants expect volatility to remain high

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The expected impact from potential election outcomes

While positioning portfolios today for a specific outcome in November is ill-advised, it’s important to recognize that Trump and Biden have promulgated divergent economic and fiscal policies. In a second term, we believe President Trump would focus on deregulation, an “America first” approach to international trade, and tax reductions (which may consist of making permanent the 2017 Tax Cuts and Jobs Act). By contrast, Joe Biden would seek to increase spending on climate change mitigation, expand access to federally funded healthcare, and raise taxes on corporations and high-income earners. The need for more infrastructure investment is among the few issues on which both candidates agree, but neither candidate has outlined how to pay for the public improvements.

The composition of Congress, geopolitical developments, and the state of the economy in 2021 all will influence how the next administration will function. There are four plausible electoral scenarios, two of which result in a unified government (Blue Wave or Red Wave) and two with a divided government (either Trump or Biden with a Republican Senate and Democratic House). For each scenario, we forecast the likely impact on the US economy, equities, and fixed income at

Divided government

Policy through regulation

The critical distinction for investors is whether the November election results in a unified or a divided government. Gridlock in D.C. makes enacting tax and spending legislation very difficult, leaving regulatory and trade policy as the main economic policy drivers. Tougher regulations with a Biden administration are a headwind for certain sectors in the equity market, and could be a modest negative for economic growth, but the overall impact is small relative to fiscal policy.

Meanwhile, compared with Trump, Biden’s reluctance to use tariffs as a geopolitical tool could be a tailwind for the economy and markets. Biden is likely to revert to a globalist approach when dealing with most of America’s trading partners. Bilateral trade relations with China may prove an exception, but, even here, we expect that Biden would be less willing than President Trump to use tariffs as an overt tool of foreign policy. The adverse impact of more aggressive regulation versus more adversarial trade policies could cancel each other out, leaving the economic and market trajectories relatively unchanged from their current course regardless of who is elected.

Unified government

A bigger impact

It’s a different story entirely with a unified government, which could result in more substantial changes to fiscal policy. To prepare for the possibility of Blue and Red Wave outcomes, we consider the characteristics of a “Trump Trade 2.0” versus a “Biden Trade.”

Trump Trade 2.0

The main characteristics of the first Trump Trade are likely to persist in version 2.0, albeit in diminished magnitude. The expected pro-growth policy mix of tax cuts, fiscal spending targeted to infrastructure, and deregulation would be incrementally positive for growth and equities. Financials and energy could benefit both because they are key barometers of economic growth and because the uncertainty of potential regulatory changes under a Biden win would be eliminated. This policy mix could also benefit value stocks more broadly. However the risk of a reescalation in the trade wars could temper investor enthusiasm.

The Biden Trade

There may be a widespread presumption that a Blue Wave would be negative for US equities, and other risk assets to a lesser extent. We acknowledge the risk, but we think a Blue Wave will have a roughly neutral effect on equities, though there will likely be winners and losers. Virtually all companies will face the prospect of higher corporate taxes. But bear in mind that tax increases could be phased in over time and higher government spending may exceed the level of tax increases. At a sector level, industrials, materials, and segments of tech and utilities could be modest beneficiaries from transportation, green, and tech infrastructure spending.

Scenario analysis summary

Check out our forecast of the likely impact on the US economy, equities, and fixed income for four potential election outcomes.

The road to 2020

Our coverage of the 2020 US elections will continue throughout the months ahead.


How to invest between now and November

Although the November election looms large, it should not be the determining factor in constructing investment portfolios. In fact, the starting point in preparing portfolios for November is to take a step back and ensure you are appropriately allocated—based on your specific circumstances—in the first place. Our Liquidity. Longevity. Legacy.* framework is a process for doing so that can help every investor find the right balance between risk management and potential wealth accumulation.

Even with a disciplined investment approach, the temptation admittedly exists to position portfolios to take advantage of, or hedge against, potential election outcomes. We caution investors against doing so at this time, but rather to be flexible to alter their portfolios as new information arises. The election outcome is still uncertain and positioning a portfolio right now for a specific outcome leaves it vulnerable to the good chance that another outcome, with different market consequences, materializes.

Blue Wave implementation

In a Blue Wave scenario, we believe relative winners could include companies that are leveraged to infrastructure spending with a focus on green initiatives, transportation infrastructure, and 5G buildouts. Other relative winners could include companies that are more insulated from an increase in corporate taxes and those that could benefit if trade tensions cool. Within healthcare, we recommend companies that could benefit from an expansion of healthcare coverage.

Red Wave implementation

In the Red Wave scenario, our recommendations are leveraged to infrastructure spending on transportation and 5G networks. Select energy and financial companies could also benefit from a “relief rally” that tighter regulations from a possible Biden administration are avoided. Within healthcare, we recommend managed care companies, which also avoid the risk of changes in healthcare coverage from a potential Biden victory. Other relative winners include defense companies that should enjoy a more supportive backdrop in a second Trump term.

Campaign Warriors

We are still likely to see uncertainty remain around major policy issues throughout the campaign season. For investors looking to maintain equity exposure without adding significant policy or headline risk, our “Campaign Warriors” thematic report (PDF, 242 KB) includes implementation ideas that are, in our view, relatively insulated from electioninduced volatility relative to their peers. Our recommendations avoid companies with significant exposure to the potential major policy changes that will be discussed on the campaign trail.

Preparing portfolios for November

Get your free copy of our eighth edition of the ElectionWatch 2020 report series.

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