Although the race has not been called, it certainly looks like Vice-President Biden will be called the winner by this evening or tomorrow morning. These results will not be official and legal wrangling may continue over the next week. The election result will not change. The Senate is highly likely to stay in Republican hands. The most probable outcome is a split government.
The market reacted favorably this week. We have held the opinion that a Biden presidency would not be detrimental to the stock market and that seems to be playing out. However, as the political situation becomes clearer, there may be some adjustments to make to the portfolios. Our basic outlook has not changed but there is more uncertainty about the size and timing of a necessary stimulus package. Here are the key points:
- Chairman Powell said this week the Federal Reserve has capacity and intention to provide financial stability through the purchase of assets. Interest rates will stay low for the foreseeable future. This lends support to the stock market but does create problems for retirees looking for income. It requires more risk to get adequate returns on investments.
- There is a significant amount of individual and corporate liquidity meaning there is a lot of cash on the sidelines. Hopefully, stimulus will be directed to and get to the people and businesses that need it most. We will address this need in future communications. It would not be a good thing to have massive bankruptcies and homelessness in the middle of this pandemic.
- Shutdowns or not, COVID-19 continues to change our behavior and spending patterns. We are in for a long winter and the economy needs help to get through it.
- Unemployment remains high. Segments of the economy are recovering and there are hopeful signs in the manufacturing sector.
- Trade wars are likely going to be a continuing drag but there is some hope this situation will improve.
- There was no “blue wave” in this election and therefore no public mandate for passing major progressive legislation, including particularly large new taxes.
- Taxes will need to go up. This would be true under any administration when you are spending $1.80 for every $1.00 collected in taxes. But with a split government, the probability of any major changes went down considerably.
- The dollar may very well continue to weaken making international investments more attractive.
With the political situation still in flux, we will make adjustments if warranted.