Stocks And The 2020 Election: 5 Charts And Some Questions

Stocks And The 2020 Election: 5 Charts And Some Questions

The debate continues to rage around how stocks and the economy would react to a hypothetical Elizabeth Warren victory in the general election next year.

The fact that somebody, somewhere, is having this conversation each and every day is likely a testament to two things.

First, people are nervous about making assumptions when it comes to whether Warren is electable. Sure, you can find plenty of soundbites from folks claiming she can’t win, but if everybody really believed that, then why all the hand-wringing about her momentum? I seriously doubt whether the squirrels in my backyard possess the organizational skills and the sense of purpose necessary to lay siege to my house and claim it for themselves, so I don’t spend a lot of time thinking about it. But you can scarcely go a day without somebody on business television talking about Warren (Jamie Dimon chimed in on Tuesday, for example) and fearmongering about how bad her policies would be for equities and the economy.

Read more: CNBC, Cooperman Double Down On ‘Pity The Billionaire Curmudgeons’ Strategy To Counter Liz Warren

Second (and this is a related point), 2016 proved that Americans are susceptible to a populist narrative that promises to restore prosperity to a “forgotten” middle class which has fallen victim to a system that doesn’t work for them. Donald Trump peddled the same message, but his narrative (that a billionaire with a long history of narcissism and flaunting his wealth) suddenly decided to care about flyover America was always far-fetched.

Warren, though, actually does care. It’s entirely possible that her obvious passion and righteous indignation at the plight of the everyman resonates with some of the same voters Trump duped in 2016, only to sell them down the river with corporate tax cuts and policies that disproportionately benefited the wealthy.

In any case, given the hysteria, we thought readers might be interested in a handful of simple election charts from Goldman. The first set just shows the median return for the S&P since 1932 indexed to 18 months prior to the vote (left pane) and the trajectory of valuations around elections (right pane):


What’s interesting there is that if the combination of Warren worries, a decelerating economy and a delirious Trump (one can only imagine how he’s likely to behave in 2020 if he survives the impeachment inquiry) conspire to undercut stocks materially in the lead up to the vote, it would mark a break with historical precedent.

As far as the potential impact of any effort to roll back the tax cuts, the following charts won’t be “news” to anyone, but they are a handy reference guide if you just need something to point to and say “here’s the boost from Trump’s corporate handout”:


In the same vein (or, actually, on the flipside), here’s what happens to Goldman’s 2021 S&P EPS outlook assuming a higher effective tax rate:


Clearly, that would not bode particularly well for stocks all else equal, but when you consider all of the above, you should ask yourself two questions (and try to suppress your own predisposition to being skeptical towards progressive policies for a moment):

  1. What do you imagine the impact on consumer spending would be if healthcare were to become free?
  2. What do you imagine the impact on household formation and consumption would be if student debt were wiped away?

Now consider that the people who would really “feel” (so to speak) the impact of those policy changes also have a higher propensity to spend. Then consider the US economy lives and dies by the consumer.

Something to think on.


10 thoughts on “Stocks And The 2020 Election: 5 Charts And Some Questions

  1. Health care would not be “free”. Govt debt would be issued leading to potentially higher rates and lower investment I would guess. And well paid jobs would be lost requiring retraining etc. Neg wealth effect from insurers going to zero as well as loser profits from health care sector (leading to fewer jobs, investment and innovation).

    1. yes, government debt “would be issued leading to higher rates”… just ask Japan, right? or just ask… wait for it… the US, where Mnuchin is flooding the market with supply, and yet yields in August were near all-time lows.

      the fact is, recent evidence suggests MMT will likely work. and that’s what drives everyone so crazy. China has been running a version of it for years too.

      bottom line: you’re speculating. and you’re not addressing the rather obvious thing we asked you to try and think about — namely the likely boost to consumer spending in an economy driven by consumption.

      here, try this:

  2. Both universal healthcare and student loan debt relief would greatly benefit the economic stratas that has the greatest propensity to spend.

    Directing $1 of federal money to people who will turn around and spend that $1 right back into the economy is a lot more stimulative than directing $1 to people who will add it to their investment funds.

    There is too much damn $$$ trying to be invested. Too much capital chasing too few investment opportunities causes low yields, high valuations, forced risk taking, etc. Ray Dalio talks about this a lot. E.g.

  3. It’s so blatantly obvious that Warren’s policy plans will have short term and long term positive economic effects. As Warren takes a commanding lead for the Dem nomination around the end of March there will be a lot of chicken little talk from the sheep at CNBC and that ilk which along with continued soft real economic data (mini recession) will hinder equities possibly significantly. Then the “smart take” from experts will come out in May about how stimulative her economic plan is and will drive equities out of the range-boundedness we’ve been stuck in for past 2-3 years.

  4. Warren should sell student debt amnesty as a true middle class tax cut, which is exactly what it is.

    The healthcare industry in this country is an incredibly inefficient machine with perverse incentives and grift that would make a 3rd world country blush. Warren’s plan may or may not be the best answer, but the belief that the “transition costs” with a change are too high is just laughable.

  5. Just got my Blue Cross Blue Shield health insurance packet for next year.
    Monthly premium of $1156 x 12 = 13,872 plus deductible of $8.150 = $22,000+ out of pocket for the year before “insurance” even kicks in.
    I’m single, self-employed and make too much for assistance.
    This is a MASSIVE TAX on my income.
    Seems to me any meaningful reduction in that total would far outweigh any “beautiful tax cut” the Republicans could come up with.

    Who do you think I’m going to vote for?

    1. The cost of your policy is outrageous. No. It’s criminal. All Warren has to do to win this thing is to introduce 20, 25 people with similar policies at every one of her rallies and public appearances; she’d win in a landslide.

    2. Ouch. Same BCBS charges about the same for my family of 4 and my employer pays about 2/3 of it.

      There must be a way pool up a million of people like you and get better rates from the insurers.

  6. We here in Canada just can’t believe what Americans are willing to pay for health care and don’t revolt in reaction. You have been exploited by a medical system that spins the idea that buying access to medicine is the same consumer process as buying a car. You are sold freedom of choice, while being exploited in a truly inhumane way. I just go to a doctor or a hospital and show them my health card and that is the last time I have to worry about money for medical care. It doesn’t even take one minute. Yes, my taxes are a bit higher, but nothing compared to the premiums Americans pay. And having it as a part of the tax system ensures that ability to pay is part of the equation, so that those who do well get a chance to also do good by helping their fellow Canadians have free health care. And after 50 years of having Medicare for all we overwhelmingly support it and defend it.

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