What advisers should expect from Trump-Biden debate
The markets are longing for economic stimulus and less talk about tax hikes
Beyond the obvious entertainment value, the first presidential debate of 2020 is not expected to immediately move the needle much, but the broader implications for the financial markets could be on display for the discerning eye.
“I don’t expect to hear a lot of policy points, because the electorate doesn’t seem interested in policy,” said Will Weatherford, managing partner at Weatherford Capital.
“It’s a turnout game now and elections are no longer about convincing people to vote for you,” he added. “It’s more of a personality contest.”
Speaking Tuesday morning as part of virtual panel discussion on what investors and financial advisers might hear from the debate, Weatherford said President Donald Trump already lowered the bar for Democratic nominee Joe Biden by challenging his competence.
“President Trump is incredible at managing expectations, both for himself and his opponents, and it seems he’s set a trap for himself tonight by lowering the expectations for Biden,” Weatherford said. “If Biden can just show up and make complete sentences, he’s succeeded.”
The fact that Biden is currently leading in the poles in many swing states and most pundits expect him to win should not be accepted as a foregone conclusion, Weatherford added.
“He needs to be careful not to just play prevent defense, and the president needs to be aggressive because he’s the underdog,” he added. “Remember, Hillary [Clinton] did great in the debates, and we know how that turned out.”
COURT VACANCY
The already-contentious election was elevated to a new level with the Supreme Court vacancy following the passing of Ruth Bader Ginsburg on Sept. 18. While the vacancy, coupled with Trump’s nomination of Amy Coney Barrett, are expected to be part of the debate, the broader point is the way the Ginsburg vacancy dampens the likelihood of another round of economic stimulus before the election.
“If you go back to mid-August, the market expected another round of stimulus, but when you inject such a vitriolic subject as Ruth Bader Ginsburg passing, … now all the political energy will be focused on that,” said Troy Gayeski, partner and co-chief investment officer at SkyBridge Capital. “That’s just another big hurdle in getting stimulus done in time for the election,” he added.
Asked if Democrats in congress are intentionally blocking another round of stimulus to hurt the economy leading up to the November election, Weatherford said it is more personal than that.
“I just don’t think the Democrats want to give the president a win,” he said. “We know that the most productive time in a congress is usually the first 18 months after an election.”
Economists generally agree that more economic stimulus is coming, regardless of who wins the presidential election, but the longer it is delayed the more dire the outlook for the economy, said Frank Rybinski, chief macro strategist at Aegon Asset Management.
“Ideally, we’d like to get it as soon as possible,” he said, citing a $2 trillion hole in the economy that was created by the COVID-19 pandemic and the resulting economic shutdowns.
“We need stimulus to build a bridge to an economy on a more normalized path, and the longer-term effects from the shock will be even greater after the shock is gone,” he said. “Even next spring, say we get a vaccine, there’s still going to be the long-term negative effects to deal with.”
While Rybinski expects to see strong third quarter economic data, the fourth quarter will be more telling of how healthy the economy is because the economic productivity pullbacks are just starting to take hold.
“On the institutional side we’re seeing tremendous cuts in R&D and that’s where you get future productivity,” he said. “We’re seeing a dampening effect on growth the longer this goes on.”
TAX HIKES
Beyond something supporting a compromise on the stimulus front, the financial markets will also be looking for a softened tone related to higher taxes from Biden, who has been promoting various tax hikes.
“Assuming Biden wins, a key bullish driver would be that he is in no rush to raise taxes,” said Gayeski. “It would be a sigh of relief to markets if he said he’s not going to consider raising taxes till the end of 2021. But I doubt it would be mentioned because that would be a promise the AOC [Alexandria Ocasio-Cortez] wing of his party wouldn’t like.”
While the initial reaction in the markets to whatever the candidates say during their first debate might be good food for thought, the longer-term focus is on how long after the election the results become official.
“I think there’s an above 50% chance of a contested election because Pennsylvania, for example, is already such a mess,” said Gayeski. “It took six weeks after Bush-Gore to settle that election in the Supreme Court and it may again be settled in the Supreme Court.”
Rybinski also believes there is a “high probability, due to the fact there are a lot of mail-in ballots this year,” of a contested election.
On that note, Sylvia Jablonski, managing director at Direxion, said financial advisers should brace their clients for volatility until at least after the election results are final.
“I wouldn’t expect any stability in the markets until we know who accepts the election results,” she said.
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