What a Trump victory may mean for the market
Paul Christopher, Head of Global Market Strategy for Wells Fargo Investment Institute, joins The Final Round to discuss his thoughts on the market and what impact the presidential election will have as the first round of presidential debates are happening on Tuesday night.
Video Transcript
- And with more, we want to bring in Paul Christopher, who's the head of global market strategy at Wells Fargo Investment Institute. And Paul, let me start with the basics here. How is the market thinking about the latest proposal that we've gotten from the Democrats, and how likely do you think it is, or how likely does the market think it is, that we'll get some sort of deal before the election?
PAUL CHRISTOPHER: Our view is that we're unlikely to get something before the election. As Jessica pointed out, we're still almost $1 trillion apart. That tells me that the two sides are really still politicking, playing politics with each other, trying to advance their own particular points of view, without necessarily working for our real compromise yet.
The good news about governments is that they do tend to respond to crises. And we've seen that from this Congress and this White House since March. And if we do get a significant slowing in the fourth quarter, it is possible that you'll get a stimulus deal after the election, but probably not beforehand.
The good news, though, as Myles pointed out, is that the economy is showing itself probably resilient enough that it can make it through and maintain positive growth and positive earnings well into next year, even without the stimulus. It's just that Congress will have missed a chance if they don't do it. They will have missed a chance to help out.
- Well, what do you think we need, just in terms of another catalyst here? What do we need in order to get back to those highs that we saw just a few weeks ago? If we're not going to get stimulus here over the next couple weeks, what else are you looking at?
PAUL CHRISTOPHER: Well, we need to really to get through the election season. Honestly, there's so much anticipation and so much anxiety about a contested election, about delayed countings of ballots around the different states, about legal challenges from one party or the other. We need to get the election season over with, and then we need to get into the early part of next year and see that the economy is still resilient with or without another stimulus bill into the end of this year.
INES FERRE: Paul, Ines here. Now through the next couple of months, what do you think is the biggest risk for the markets? Is it coronavirus headlines, is it no stimulus, or is it perhaps a contested election outcome?
PAUL CHRISTOPHER: All three of those will be sources of volatility. Probably, coronavirus is the most-- is the point on which the market is the most sensitive. The markets are already looking for a delayed election result at this point. That's not going to be a positive, but it's probably a known factor. It's coronavirus that really is the unknown here. What sort of infection rates do we get after the weather turns cold enough that most activity turns indoors again?
RICK NEWMAN: Hey, Paul. Rick Newman here. There's been some analysis of a full Biden administration by forecasting firms like Moody's Analytics and Oxford Economics, and they're finding that if you actually had something close to Biden's policies enacted by a Congress controlled by Democrats, that would actually be a net positive for the economy compared with status quo. So you'd have higher taxes, but also a lot of stimulus that would boost the growth over time. Do the markets believe that yet, or are they not there?
PAUL CHRISTOPHER: I don't think the markets are there. I don't think we're there either. Any combination of the Biden and the Democrats' tax increase plans would be negative, we think for economic growth and for earnings in particular.
As you pointed out, though, the stimulus, the spending part of it, is going to be the interesting piece, because you have to figure that no matter which party wins, they don't want to throw the economy into a new recession again, whether that's President Trump or a President Biden.
So we are anticipating a wide variety of spending programs that we think could be positive for different sectors in the market. And investors next year will be asking themselves the question, what is the government trying to do? And then the answer to that question will determine a lot of their investment decisions. It's too soon to make those calls yet, Rick, but eventually, it will be time to ask that question.
- Paul, you're out with a new report. You were looking at the potential implications, going off of what you were just saying, but of a second term for President Trump. And I know you examined his foreign policy plans and tax plans. And just overall, high level, what does this mean for the economy, for the markets, and then just in terms of what you were just saying, about how it stacks up to what we could see from Biden?
PAUL CHRISTOPHER: Well it's important to remember that both sides, no matter who wins, is going to end up doing some spending next year, whether it's on infrastructure or health care spending or income transfers. We are looking for more federal spending, whether it's philosophically driven, or whether it's driven by a desire to keep the economy and its recovery going next year. So that's going to be an important piece. No matter who wins, look for investment opportunities. Next year there will be some.
But having said that, there are going to be some differences between the two sides as well. We think that probably Trump takes a more tougher stance with China. Biden takes a more multilateral stance. That's probably better, a weaker dollar under Biden, and a stronger dollar under Trump. That could be more positive for stocks under a Biden administration if you have a weaker dollar.
On the other hand, the Democrats have the tax proposals-- would be negative for the economy and probably negative for the markets. We'll just have to see how those end up stacking up. As I said a few minutes ago, how will those stack up against the spending programs that we're expecting no matter who wins?
- We will see. Only time will tell. But Paul Christopher, thanks so much for taking the time to join us, head of global market strategy for Wells Fargo Investment Institute. We'll talk to you soon.
