Chief Investment Officer
Summary: As someone who believed that Biden could do a clean sweep six week ago it may seem odd that I now, again, have changed my position. I still have a high conviction on a Biden win, but a far lower conviction that the Democrats have a chance of taking a Senate (so important as Congress must have both houses on the side of the presidency for any chance of major tax and regulatory reform).
Here are are some reasons Democrats may struggle more than currently believed:
The Democratic Party is already allocating cabinet posts before the election! This is a classic Democratic mistake. Remember Hillary Clinton and her hubris? Link
The Biden tax plan is far more heavy (negative) for the economy than the "pipedream" sold by markets.
Add to this a projected 10% drop in S&P 500 earnings from the Biden Tax plan as estimated by Bank Of America!
I have read hundreds of sell-side reports suggesting that a Democratic President is good for markets! But while the Fed can be expected to do what it always do, the Biden plan would reverse nearly everything that Trump did on taxation and deregulation to boost markets. But I will let the Hoover breakdown of Biden’s tax plan do the talking: Link.
The Polls are simply wrong (mathematically) – As resident quant Anders Nysten explains in our Q4 Outlook: US Election "...The typical polling margin is ±3% in state polls that can only ask a small subset of the whole population. Recent studies have shown that, when accounting for other possible errors such as the correlation between the state poll errors, the real-world margin of error should be twice as big. In practice, this means that some of the 2016 state polls would not have been able to call a winner within the uncertainty limits of the poll"
Now look at the polls below and consider potential outcomes given a more appropriate level of uncertainty: The shy Trump voters. Personally, I can see why there are good reasons to hide that you are a Trump voter, but let’s look at what one survey says:
What CloudResearch Found (link):
2024: The wasted year
Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.
As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.
Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.
With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.
Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.
Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.
As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.
Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.
With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.
Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.
