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BlackRock Commentary: A consequential election

Mike Pyle, Global Chief Investment Strategist together with Elga Bartsch, Head of Macro Research and Scott Thiel, Chief Fixed Income Strategist, both part of the BlackRock Investment Institute, share their insights on global economy, markets and geopolitics. Their views are theirs alone and are not intended to be construed as investment advice.

The U.S. election is taking place against a historic backdrop of a pandemic, recession and domestic strife. The outcome could have significant implications for key policy areas:  fiscal stimulus, public investment, taxation, regulation and foreign affairs. It also has the potential to supercharge structural trends such as an increased policy and market focus on sustainability.

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Sources: BlackRock Investment Institute, with data from FiveThirtyEight, September 2020. Notes: The orange line shows the advantage of former Vice President Joe Biden over President Donald Trump in national polls. The yellow line shows Biden’s average advantage in six decisive states: Arizona, Florida, Michigan, North Carolina, Pennsylvania and Wisconsin.


Democratic nominee and former Vice President Joe Biden looks to have an edge in the race, leading President Donald Trump by about seven percentage points in recent national polls. This lead has been remarkably stable this year. Yet his lead is narrower in decisive electoral states that could still give Trump a path to re-election. See the chart. The contest for the U.S. Senate – key to a potential Biden administration’s ability to implement its agenda – appears close to a tossup. We see three plausible scenarios to plan for: 1) a Democratic sweep of the White House and Congress (with Democrats winning control of the Senate); 2) a Biden win with a divided Congress; and 3) a status quo Trump win. The pandemic has helped create historically challenging circumstances for the election, including a leap in mail-in voting that could complicate vote counting, delay results and trigger legal challenges. We see a material risk of a contested election or a delayed result. Election day could turn into weeks or months.

We see fiscal policy as the most critical area to watch, as it has been helping bridge the economy through the Covid shock. The two Biden victory scenarios would look very different through this fiscal lens, in our view. A Democratic sweep would likely pave the way for a new round of large-scale fiscal stimulus and boost spending on clean energy, transport and housing – but also increase taxes for companies and the wealthy. A Biden win with a Republican-controlled Senate would lead to much less ambitious fiscal stimulus and infrastructure spending, and no major tax changes. The net difference in fiscal spending between the two scenarios could be several percentage points of GDP over each of the next few years, we estimate. Fiscal spending under a second Trump term would be somewhere in the middle between those two scenarios.

The election result will have implications for the key geopolitical risks we track. A Biden win – under either scenario – would likely signify a return to more predictable trade and foreign policy, supporting emerging market assets and broader risk sentiment in the short term. Yet we see U.S.-China rivalry staying structurally elevated across dimensions such as technology, trade and investment under Biden, due to bipartisan support for a more competitive stance on China. Climate policy would also be a major focus. The U.S. would likely immediately rejoin the Paris Agreement and increase its emissions reduction goals. Its fiscal plans could help supercharge a globally coordinated green stimulus effort, adding to recent efforts by the European Union. A Trump win, by contrast, would likely lead to a doubling-down of the “America First” stance on trade and immigration.

We think a “tax-centric” election analysis — with a Democratic sweep seen as a market negative, and divided government a positive — is too simplistic. In a Democratic sweep scenario for example, investors would have to balance higher taxes and tighter regulation with greater fiscal support and predictable foreign policy. We see the main implications of this scenario in fixed income and leadership in equity markets. It could push long-term rates higher and lead to a modest steepening of the Treasury yield curve. Domestically oriented equities, including small caps, might benefit the most, whereas higher taxes and tighter regulation could pressure large caps. This scenario would add to reasons to prepare for a higher inflation regime and reinforces our strategic underweight of developed market nominal government bonds. The tectonic shift to sustainable investing will likely persist regardless of the result, but could be supercharged under a Democratic sweep scenario.


Market Updates

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Past performance is not a reliable indicator of current or future results. It is not possible to invest directly in an index. Sources: BlackRock Investment Institute, with data from Refinitiv Datastream, September 2020. Notes: The two ends of the bars show the lowest and highest returns versus the end of 2019, and the dots represent year-to-date returns. Emerging market (EM), high yield and global corporate investment grade (IG) returns are denominated in U.S. dollars, and the rest in local currencies. Indexes or prices used are: spot Brent crude, MSCI USA Index, the ICE U.S. Dollar Index (DXY), MSCI Europe Index, Bank of America Merrill Lynch Global Broad Corporate Index, Bank of America Merrill Lynch Global High Yield Index, Datastream 10-year benchmark government bond (U.S. , German and Italy), MSCI Emerging Markets Index, spot gold and J.P. Morgan EMBI index.

Market backdrop

Economic activity is running ahead of expectations in developed markets, albeit at different paces due to varying virus dynamics. Market volatility is returning after months of steady advances in risk assets, and we see elevated volatility ahead of the November U.S. election. The window appears to be closing for any new U.S. fiscal package before the election. The pandemic is still spreading in many countries; and U.S.-China tensions are running high.

Week Ahead

  • September 29th: The first U.S. presidential debate, U.S. consumer confidence
  • September 30th: China official manufacturing purchasing managers’ index (PMI); euro area flash inflation
  • October 1st: Japan, euro area, UK, U.S. manufacturing PMI
  • October 2nd: U.S. nonfarm payrolls

The first U.S. presidential debate will be a focus. Some U.S. data next week will be key for gauging the status of the economic recovery. Markets expect U.S. consumer confidence to rebound from a six-year low in August, and nonfarm payrolls to grow at a slower pace than a month earlier. Concerns about the recovery running out of steam are rising as the risk of fiscal fatigue is crystallizing in the U.S.

BlackRock’s Key risks & Disclaimers:

This material is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The opinions expressed are as of September 28th, 2020 and may change. The information and opinions are derived from proprietary and non-proprietary sources deemed by BlackRock to be reliable, are not necessarily all-inclusive and are not guaranteed as to accuracy. As such, no warranty of accuracy or reliability is given and no responsibility arising in any other way for errors and omissions (including responsibility to any person by reason of negligence) is accepted by BlackRock, its officers, employees or agents. This material may contain ’forward looking’ information that is not purely historical in nature. Such information may include, among other things, projections and forecasts. There is no guarantee that any forecasts made will come to pass. Reliance upon information in this material is at the sole discretion of the reader.

The information provided here is neither tax nor legal advice. Investors should speak to their tax professional for specific information regarding their tax situation. Investment involves risk including possible loss of principal. International investing involves risks, including risks related to foreign currency, limited liquidity, less government regulation, and the possibility of substantial volatility due to adverse political, economic or other developments. These risks are often heightened for investments in emerging/developing markets or smaller capital markets. 

Issued by BlackRock Investment Management (UK) Limited, authorized and regulated by the Financial Conduct Authority. Registered office: 12 Throgmorton Avenue, London, EC2N 2DL.

MeDirect Disclaimers:

This information has been accurately reproduced, as received from  BlackRock Investment Management (UK) Limited. No information has been omitted which would render the reproduced information inaccurate or misleading. This information is being distributed by MeDirect Bank (Malta) plc to its customers. The information contained in this document is for general information purposes only and is not intended to provide legal or other professional advice nor does it commit MeDirect Bank (Malta) plc to any obligation whatsoever. The information available in this document is not intended to be a suggestion, recommendation or solicitation to buy, hold or sell, any securities and is not guaranteed as to accuracy or completeness.

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