As most of us would know by now, the US is in election season. Although it's less than 3 months away, I think it's time to have a think about what the outcome of the world's greatest political theatre could mean for ASX shares. Because like it or not, the fortunes of our share market are intrinsically linked to how the US markets perform.
To illustrate, the S&P/ASX 200 Index (ASX: XJO) took a rather large dive when it became clear that Donald Trump won the 2016 Presidential Election. Why? Well, it's probably because the US markets did the same thing, and probably not because ASX investors simply weren't too keen on Trump.
So I'm fully expecting the US election that will be held on the first Tuesday in November (Wednesday our time) will be a market-moving event.
As such, I think it's a good idea to have a look at both presumptive candidates and determine what will happen if either gentleman is elected (or re-elected in Trump's case). The Republican nominee is, of course, Donald Trump and the Democrat nominee is former Vice President Joe Biden. We Fools generally like to stay out of politics on a professional level. So today we'll just stick to talking about possible impacts of either a Trump or Biden administration on the world of investing today.
Trump vs Biden
Before the coronavirus pandemic hit, Donald Trump had built a reputation as an 'economy first' president. At his State of the Union address in January, Trump touted the 'blue-collar boom' that his policies had elicited. Those policies include a 'cutting red-tape' agenda as well as passing one of the largest tax cuts (for both corporations and individuals) in American history. Trump frequently cited a stock market at (then) record highs as evidence of his economic prowess. Trump has also vaunted a 'tough on China' approach to foreign policy. This has caused some global economic tension over the past few years.
Most of that narrative has been lost today in the face of the pandemic. Trump is positioning himself as the candidate best suited to 'lead the recovery'. However, there are very few concrete policies on the table as of yet.
In contrast, Democrat Joe Biden is running against Trump on a 'battle for the soul of the nation' ticket. He is emphasising the need for Americans to have better access to healthcare. Also, resuming America's leadership role on the global stage (including on climate change) is on the agenda. He is also advocating higher taxes and a reinvigorated response to the coronavirus pandemic that is currently crippling the nation.
On the face of it, it seems President Trump is running on a more 'pro-business, pro-markets' ticket. Thus, conventional wisdom would point to market reacting more positively to a re-elected Trump administration compared to Biden getting elected. Biden is putting higher taxes on the table, as well as a significant shakeup of the private sector-dominated US healthcare system with a public option. That's not normally a recipe for a higher share market.
Foolish takeaway
However, this is no ordinary election. I think its fair to say President Trump's handling of the coronavirus response has been received with mixed reviews. And even before this pandemic, Trump has been a controversial commander-in-chief. He was even impeached at the start of the year. It's possible that the markets would welcome a changing of the guard on these fronts.
In the end, the extreme nature of this election makes it hard to predict how markets will react. Trump is the 'devil America knows' so a Biden win might cause some more volatility on that front. Whatever happen though, I would be expecting some large moves either way.
