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Investors focused on late scandals, not Trump, Biden debate: analyst

President Trump and former Vice President Biden faced off in a more substantive debate, but investors have their eyes on any late scandals that could upend the race, according to Ed Mills, Washington Policy Analyst at Raymond James. He spoke with Yahoo Finance’s Alexis Christoforous and Brian Sozzi.

Video Transcript

ALEXIS CHRISTOFOROUS: It was definitely a kinder and gentler debate last night in Nashville, where President Trump and Joe Biden met up for a spirited, but much more substantive conversation than the first time. Still, they clashed over everything from election meddling to allegations of corruption to Obamacare and Biden's call for a public option.

KRISTEN WELKER: Well, what's happening on Capitol Hill.

DONALD TRUMP: He's talking about socialized medicine. And when he, and health care. When he talks about a public option, he's talking about destroying your Medicare, totally destroying. And destroying your social security. And this whole country will come down. You know, Bernie Sanders tried it in his state. He tried it in his state. His governor was a very liberal governor. They wanted to make it work.

KRISTEN WELKER: OK, let's hear what.

DONALD TRUMP: It was impossible to work.

KRISTEN WELKER: Vice President Biden respond.

DONALD TRUMP: It doesn't work.

KRISTEN WELKER: Vice President Biden.

JOE BIDEN: He's a very confused guy. He thinks he's running against somebody else. He's running against Joe Biden. I beat all those other people, because I disagreed with them. Joe Biden he's running against.

ALEXIS CHRISTOFOROUS: All right, let's talk about it now with Ed Mills, Washington policy analyst at Raymond James. I guess that was one of the more heated exchanges of the night, but muting those microphones really seemed to actually work. Ed, do you think that last night changed any voters' minds who might have been on the fence? Did it move the needle for voters Trump needed last night to go his way? Do you think it worked?

ED MILLS: Yeah, Alexis, what we've seen throughout this campaign, is that we've had major events, big bombshells, and then we wait a little bit and the race seems pretty stable. So from that perspective, I wouldn't be surprised if that a few days from now as we get all of the details from the polling after this, and that it's a relatively stable race.

What I think it might change minds of is kind of the market. And when I talk to investors, what everyone is focused on is, are we going to see a replay of 2016? We have some late scandals in this election. If Trump is looking like he is having the momentum, more doubt kind of going into the market versus more kind of doubt in the outcome from a voter perspective.

BRIAN SOZZI: Ed, in talking to events investors are you are you sensing there could be a big post-election move in the markets either way?

ED MILLS: Brian, so what I've heard from investors, is that the concern about what taxes would look like after the election are really moving up the list of concerns. In a Democratic sweep, we absolutely are going to see some tax changes. And I do think that any tax bill is probably a late 2021 event at the earliest. However, the debate is, do they make those tax changes retroactive to the beginning of 2021, even if it occurs late in the year.

And so if there is a Democratic sweep, what we're hearing more and more from investors, will there be some kind of tax loss positioning additionally in this year versus other years? Will we see some of the high flyers take a little bit of a breather as people are taking profits, especially if some of the highest net worth individuals in this country could see their long-term capital gains go from 20% to 40%? I fundamentally think that's a buying opportunity. But that volatility certainly is to be expected.

ALEXIS CHRISTOFOROUS: All right, let's stick with the market for a minute, because the president brought it up several times last night. He said that 401(k) plans under his presidency have been booming, the stock market will boom if he wins again, and will quote, "crash" if Biden wins. But if you look at the numbers and history, tells a very different story. And we see that the S&P 500 has had a return of about 14% a year, even if you go all the way back to President Reagan. So I guess my question to you is, how much does who is president really matter for stock market returns in the end?

ED MILLS: Yeah, Alexis, here at Raymond James, we went back to that 1980 election and looked at stock market performance under every scenario. Not only who's in the White House, but who controls Congress. And what was interesting to us, is that almost regardless of the makeup of the White House and the makeup of Congress, the average monthly return is extremely similar regardless of who's in charge.

So when I look at the market, I'd say kind of stick to your plan. That this election could have some near-term volatility. That this election could present some trading opportunities. But from a longer term perspective, trading in and around this election probably doesn't make a lot of sense for most investors. And what we also see, is that the market is usually weakest in right up to an election.

Once there is a winner known, especially from kind of January 1 through August of a first year after the election, that's a particularly strong period of time, because that's where we're seeing kind of some of the implementation. And especially next year if the implementation is fiscal stimulus, a recovery of COVID and continued monetary stimulus. Those are fundamental tailwinds to this market.

BRIAN SOZZI: Are you hearing from investors concern regarding Joe Biden's proposed energy plan? I would say Trump got Biden last night with regards to the oil soundbite, that he would transition away from oil. If he does do that, there is economic risk there.

ED MILLS: Yeah, so I think that is going to be one of the few moments of the debate, Brian, where there is an opening for President Trump to really hammer Joe Biden on that issue. And I think that will be part of the narrative on whether or not that makes a difference in Pennsylvania, which a lot of people view as a key tipping state.

However, when we look at energy, we've had a cheerleader in the White House for the energy sector in the United States, and it is the worst performer of the S&P over his presidency. And so while it is important to see what policies are coming out of Washington, DC, what is more important, is the fundamentals of the economy and what that sector is doing outside of politics. I think politics can be an accelerator or decelerater of certain trends, but it is certainly not a game changer related to market reactions in energy.

ALEXIS CHRISTOFOROUS: It all comes back to the fundamentals. Ed Mills, Washington policy analyst at Raymond James. Thanks, as always.

ED MILLS: Thank you.