Close Close

Portfolio > Portfolio Construction

COVID, Not the Economy, Will Decide the Election: Strategists

Your article was successfully shared with the contacts you provided.

This time, it’s not the economy. This presidential election will turn on the trajectory of the COVID-19 pandemic, according to Dan Clifton, head of policy research at Strategas Research Partners, an institutional brokerage and advisory firm.

“COVID is having a far larger impact on the [presidential] race than the economy itself,” said Clifton, who spoke at a recent BNY Mellon Wealth Management webinar. He explained that presidential elections are usually decided based on the strength of the country’s economy and stock market, but this time around the economy — and economic outlook — depend largely on what happens with the pandemic and the vaccine that could slow its spread and potentially end it.

To date, more than 8 million people in the U.S. have been infected by COVID-19 and more than 220,000 have died of the virus as the nation is hit by a third wave of infections.

Four “transformational events” are happening this year: the pandemic, recession, mass protests and election — a number that never happened in any single year over the past 100 years, Clifton said. “We are clearly in unchartered territory heading into the 2020 election.”

Clifton’s framework combined with the latest election polls gives Biden about a 60% odds of winning the presidency with the caveat that more strange events could happen in this unusual year, including a contested election.

Ultimately the swing states will determine the election, and Florida is the most important one among them to watch, Clifton said. He explained that the Sunshine State has become “very good” at administering elections following the Gore-Bush debacle in 2000 and is one of the states that will count mail-in votes early. Most political analysts note that Trump is very unlikely to win the election if he loses Florida, which has the fourth largest number of electoral votes.

Like many other election watchers, Clifton cautions that the presidential election results may not be available until days after the election because of a large expected number of mail-in ballots, many of which won’t be counted for days and could be contested in the courts, including possibly the Supreme Court. 

The next important date to watch after the election is Dec. 13 because the next day is when electors that comprise the Electoral College cast their ballots, which ultimately decides the winner of the election. If that deadline is missed because of unresolved issues, then the House of Representatives will decide the election, which hasn’t happened since 1876. That could deliver the election to Trump since Republicans control more state delegations than Democrats.

In the meantime, investors should not make any major changes to their portfolios but put them through a checkup to make sure they’re still in line with their strategic priorities, said Leo Grohowski, chief investment officer at BNY Mellon Wealth Management. Apparently many are. “Our planners are as busy as they’ve ever been.”

Grohowski also suggested that borrowers lock in current rates on loans because rates are likely to move higher with the 10-year Treasury yield doubling to 1.5% by year-end 2021.

As for the stock market, the election outcome is more likely to be reflected in the impact on individual sectors rather than the market as a whole, according to Grohowski and Clifton. A Biden win would likely benefit capital goods, construction, managed care and renewable energy but hurt pharmaceuticals, financials and defense, creating opportunities for bottom-up stock selection, Grohowski said.

— Related on ThinkAdvisor:


© 2023 ALM Global, LLC, All Rights Reserved. Request academic re-use from All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.