Posted by lplresearch
One of the top requests we’ve received the past few weeks is for more charts on the US elections. We shared some of our favorite in Election Charts You Need to See: Part 1 and Part 2, and today’s the third blog in our series on this important event.
S&P 500 Index earnings are expected to jump close to 23% in 2021 according to FactSet, as the global economy recovers. Presidential nominee Joe Biden has made it very clear he will likely hike taxes, which could potentially cut 10 percentage points off earnings growth next year if implemented. If Biden wins, we would expect Chinese tariffs to be removed as well, which would offset some of that impact and according to our friends at Strategas Research Partners would suggest earnings growth of nearly 17%.
As shown in our LPL Chart of the Day, how the US dollar does ahead of the election has been a great indicator of which party might win in November. If the dollar is weak three months before the election, this bodes well for the incumbent party, while the incumbent party tends to lose if the dollar is strong. This signal has been right 7 of the past 8 elections.
As we saw back in March, when trouble hits, the US dollar tends to do well, as investors flock to the safety of the world’s reserve currency. When things are calm, the dollar tends to weaken, which favors riskier assets. So far, the dollar is slightly lower, which would suggest a potential win for President Donald Trump.
Also, the size of the tax increase proposed by Joe Biden as a percentage of gross domestic product (GDP) would be one of the largest ever and rival President Lyndon B. Johnson’s (LBJ) tax increases in the late 1960s. Let’s remember though, if there’s a split Congress, the chances of the full tax plan being implemented is quite slim. Additionally, a weaker economy would also reduce the chances of a large tax hike.
Finally, don’t forget to watch the latest LPL Market Signals podcast on our YouTube channel, as we discuss the election and recent market weakness.
This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. Any economic forecasts set forth may not develop as predicted and are subject to change.
References to markets, asset classes, and sectors are generally regarding the corresponding market index. Indexes are unmanaged statistical composites and cannot be invested into directly. Index performance is not indicative of the performance of any investment and do not reflect fees, expenses, or sales charges. All performance referenced is historical and is no guarantee of future results.
Any company names noted herein are for educational purposes only and not an indication of trading intent or a solicitation of their products or services. LPL Financial doesn’t provide research on individual equities. All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy.
All index and market data from FactSet and MarketWatch.
This Research material was prepared by LPL Financial, LLC.
Insurance products are offered through LPL or its licensed affiliates. To the extent you are receiving investment advice from a separately registered independent investment advisor that is not an LPL affiliate, please note LPL makes no representation with respect to such entity.
- Not Insured by FDIC/NCUA or Any Other Government Agency
- Not Bank/Credit Union Guaranteed
- Not Bank/Credit Union Deposits or Obligations
- May Lose Value