Joe Biden has a 75% chance of winning the presidency, “although different election outcomes may introduce more uncertainties into the economic outlook, they are unlikely to change fundamental realities”, says Evan Brown, Head Multi Asset Strategy at UBS Asset Management in his latest Macro Monthly.
Brown: “We favor pro-cyclical positions that stand to benefit from increased optimism on the global economic recovery and higher visibility in an eventual return to pre-COVID-19 patterns and levels of spending. We believe a Biden victory along with a Democratic Congress would accelerate the tailwinds for this trade set and serve as a particularly potent catalyst for value to outperform growth. We remain diversified and retain hedges that should be poised to provide meaningful offset if the result is different or inconclusive.”
According to Brown, risk assets, over time, can weather the prospect of higher taxes on profits. “They will have much more difficulty grappling with an absence of fiscal support that puts the nascent earnings recovery in jeopardy and raises the risk of insolvencies among businesses and households whose income streams remain materially impaired due to pandemic. A full normalization of private sector activity will likely remain elusive well into 2021 due to COVID-19.”
More highlights from the Report:
- The strength of the US and global economic recovery will depend on continued support from the public sector.
- We believe that investors should focus on which election outcomes deliver the greatest likelihood of necessary fiscal support — a 'Blue Wave' and to a lesser extent, the status quo.
- In our view, a Blue Wave is the most likely election outcome. The resulting spending increase of that outcome could drive cyclicals and global equities ex-US higher and Treasuries and the dollar lower, with US stocks a relative underperformer due to higher taxes.
- We see the outcome that carries the most risk of premature withdrawal of fiscal support and a lower outlook for US growth is a Biden Presidency with a GOP Senate.
- An inconclusive election result is certainly not a market positive, but with post-election volatility already elevated we think the bar is high for major market disruption.
Here you'll find the full report 'Macro Monthly - It’s fiscal policy on the ballot' from UBS Asset Management.