Joe Biden will 'adjust his legislative agenda' to the state of the economy
Yahoo Finance’s Alexis Christoforous and Brian Sozzi discuss today’s market action with Doug Sandler, Riverfront Investments Head of Global Strategy.
BRIAN SOZZI: Always good to speak with you. It's mixed out there. You know, we talked to a lot of folks on the Street on what the market might do after the election. Where do you fall in the-- are you in the camp that we might see just a big leg lower if Biden does in fact win, simply because of the prospect of him raising taxes? Even though it'd be pushed out until, what, 2021?
DOUG SANDLER: Yeah, I think it's kind of up for debate. I think one thing is the market has had a correction, right, between September 2 and 23, the market was down 10%. So you could argue that the, you know, election correction is already behind us. I talked to retail investors and institutional investors all day long, and one thing I'm finding is it's universal that people expect a catastrophe after the election, whether that's big jumps in volatility or some sort of social unrest. As my grandmother used to tell me, a watched pot never boils. So perhaps, you know, some of this bad news is already priced in, and the sellers have already sold. So you know, I'm a little bit more bullish than I think most people are.
BRIAN SOZZI: Doug, curious on what you tell retail investors nervous when they hear the president saying their 401(k)s can be wiped out. What type of plans are they making right now?
DOUG SANDLER: Well, a lot of them unfortunately are overly concerned about that. I mean, over time, what we've found is who's sitting in the White House does not make a significant difference to the markets. There's also a check and balance system called our legislative branch, so things just can't go through. You are going to have a check and balance on that. You may remember President Obama wanted to raise taxes in 2008 as part of his political campaign, but he recognized that the economy wasn't healthy enough for that. So substantive tax reform didn't happen until 2013, and I think Joe Biden will do the same thing, that he'll recognize the shape the economy is in in January, if he ends up winning, and will adjust his legislative agenda because of that.
ALEXIS CHRISTOFOROUS: Doug, do you think that we get, regardless of who wins, a post-election sell-off, and does that create a buying opportunity? And if so, where should investors be looking?
DOUG SANDLER: You know, I don't think-- I don't feel strongly enough that we will get one. I think, you know, going into the election, it's very likely you can see market equities continue to rise as you get, you know, maybe some positive news on stimulus, positive news on COVID. Stocks love lower COVID risk, and stocks love stimulus. We also have an earnings season where expectations are very low. So anytime companies come in with better than awful, stocks are trading up. So I don't think it's a foregone conclusion that stocks are going down after the election. In fact, I think that's consensus right now.
BRIAN SOZZI: Doug, can stocks go up next year if Joe Biden does in fact win the presidency? Every day, I imagine we're going to be having a tax discussion. Is he going to raise it? When is he going to raise it? Can stocks outperform in that environment?
DOUG SANDLER: Yeah, I think I would look at Joe Biden as the multiple president and Donald Trump as the earnings president. So stock price is a component of the earnings of the company and the multiple you put on that. With Donald Trump, you probably get lower taxes and less regulation, that helps earnings, but you also get probably an amplification of trade war and of social unrest, which hurts the multiple. So I think Biden will be better for the multiple, Trump would be better for earnings, and I'm not sure how it all weighs out, if one is truly better for the market or not. I hope that made sense, Brian.
ALEXIS CHRISTOFOROUS: It makes sense, Doug. Is the best thing though for investors to do who may be feeling paralyzed by what's happening right now and all the uncertainty between the election and the pandemic, is it a good idea to just simply hold on to cash until there's a little more certainty about something out there?
DOUG SANDLER: I don't think so. I think the one thing that's clear big picture is policymakers are out to punish cash and bonds, and they do that through low rates. They do that through eroding purchasing power by printing money in big fiscal stimulus programs. So the worse things get, the more they're going to punish cash and bonds, and the more they're going to reward risk taking, which is equities, real estate, business ownership, et cetera, so you can't forget that. You know, it's sort of like a lot of people worry about the market, and then they run to the place that might be most vulnerable, which makes you, you know, scratch your head, but that's the way it works.
BRIAN SOZZI: Doug, what's your biggest tip to investors out there ahead of the election? There are a lot of nervous investors. Every day, we sit here and talk to them, and you can hear the nervousness in their voices.
DOUG SANDLER: You know, I kind of think about, we have, you know, ultimately, if you want to get to your destination, and most investors need their money to grow. They don't have enough right now to meet their, you know, long term objectives. There really are very few choices. Equities are the one thing that provide growth, and I would say, you have to be in them, but you should brace yourself that, you know, now's the time not to be watching your stock portfolio every day. It's going to make you do the wrong thing. So be more in equities than you maybe normally would, but close your eyes more often and stop watching, you know, your stocks move around. It will make you crazy.