Investments

The Election and Wall Street: Special Election Update

By Dean Barber

November 12, 2020

The Election and Wall Street: Special Election Update

It’s Wednesday, November 11th, as we record this, and the election is over, right? Maybe not. It’s Dean Barber, founder, and CEO of Barber Financial Group, along with Bud Kasper. We come to you with a special election update, whether or not you believe that the election is over or that it’s going to end up in the courts. We’re here to talk to you about what has gone on so far. And what it means to you as an individual.

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Wall Street Reactions Before and After Election Day

Dean Barber: I think that when you take a look at how the markets were reacting, the day before the election, the day of the election, the day after the election, or that entire week of the election, people might conclude that wall street loves Joe Biden. Yeah, is that is that your take? 

Bud Kasper: I would have had that same impression. I did have that same impression! Let’s just put it that way. But, you know, there are so many things coming up that we don’t know yet that you know will take place regarding the tax issues.

We all know the benefit that we had with Trump, from the perspective of rates and things. But with Biden, it seems like it’s going to be a little more costly to people, especially if you have a pretty decent income.

Why Did Wall Street React that Way to the Election?

Dean Barber: Right. I believe the reason you saw the celebration on Wall Street, the celebration in healthcare stocks, and the celebration in energy stocks. Why? I think the people on Wall Street believe we aren’t going to have a unified House and Senate. So, in other words, we aren’t going to have Democrats in the House, the Senate, and the White House. 

We’re going to have a divided Congress, meaning that the Republicans retain control of the Senate. Now, there’s still some stuff to work out. I think January 5th will be the magic date when we know all of that more.

Checks and Balances

If you read into what’s happening, there will be some checks and balances in place. So we’re not just going to be able to cram through whatever on the Green New Deal, push through whatever on health care, or shove through whatever on taxes. There will be checks and balances so that, in my opinion, and what I’ve read, and what I’ve heard, is why we saw Wall Street celebrate. 

I’ve always said that we had six potential election outcomes. Unified Congress with a Republican or Democrat President, or divided Congress with a Democratic or Republican President. There are six possible outcomes there.

Bud Kasper: Yeah. And a divided Congress, from the perspective of the stock market, is more favorable.

Dean Barber: If you look, from a historical perspective, we did this, I think, on our last monthly economic update. The best performing stock market during presidential terms was a Democrat president with a divided Congress. 

Bud Kasper: That’s exactly right. When you look at it over more extended historical periods, let’s say ten or 20 years, what you’re going to find out is that the market did a little bit better than under Democrat than Republicans in that situation. Not by a whole lot. But there was some favourability there. 

Dean Barber: The difference was small, right?

Bud Kasper: Yeah, almost so small, to the point that it was meaningless.

COVID-19 News and Wall Street Reactions

Dean Barber:  We’ve also been talking that it wasn’t whoever will be president or who would be in control of the House and Senate that will be the main driving factor of our economy in the future. What we said was, it’s going to be a vaccine or a meaningful treatment for COVID-19. So what we find out?

Bud Kasper: The vaccine is around the corner, 

Dean Barber: Just around the corner, and what I woke up and saw the futures on Monday, up by 1400 points, I’m like, “What? This can’t be real.” Then I got to read the headlines, and I was like, “Ah, we’ve got a vaccine that is 90% effective, and they expect to start distributing that by mid-December.”

So it will be the quickness that they get that out, then we start seeing the numbers and how that’s working and everything else. The vaccine could set us up, but regardless of whether the election ends in Biden’s favor or Trump’s favor, many of you think it’s over. The courts may get involved; we don’t know what the outcome of that will be. 

COVID-19 Vaccine and 2021 Optimism

But I think, Bud, with the COVID-19 vaccine, we should be looking at 2021 with some pretty optimistic eyes.

Bud Kasper: I think so too, and I think the stock market will find that if COVID-19 is no longer around, then we have an opportunity. 

Let’s look at it this way. We know that people are starving to get out and put their lives back together. Back to the way they were before February 19th of this year. When that happens, money will start flowing into these businesses. 

Now, the big issue is so many businesses that have failed because of the virus, you know, that won’t be the benefactor of the recovery when it comes about. However, on the largest scale, what did you see go up the most, Dean? We saw cruise lines…

Dean Barber: …airlines, and energy stocks.

What About Tech Stocks?

I was going to bring that up. Are we going to see a rotation away from the tech stocks, the stay at home stocks, go back to regular Dow type stocks?

Bud Kasper: I think there’s a strong possibility for that to occur. In fact that we’ve made some adjustments in portfolios because of that very point that you’re bringing up here. But I wouldn’t count the techs out. 

I am a big supporter of technology and the fact that I think it’s always evolving. There’s something out there being called Moore’s Law. Are you familiar with it at all? 

Dean Barber: Yes.

Moore’s Law

Bud Kasper: Okay. Moore’s Law is the computing power of the chips inside computers increases exponentially approximately every three years. Under that idea, it supports what technology will look like in the future.

Dean Barber: There’s no question that technology, as it’s been adopted by companies all across the United States, and all across the globe, through the COVID-19 pandemic, are going to change the way businesses operate and how they do things. 

So I think technology is here to stay. I wouldn’t say that you should dump all the technology now, and go into the industrials. Don’t do that now.

Bud Kasper: I think the other part is if they break up some tech companies like Congress has been investigating with testimony. If they break them up, that could lend itself to higher profitability inside some of these companies. So it’d be pretty interesting to see if that did happen. I’m not sure it’s favorable. Nonetheless, that’s where it is.

Vaccine News Might Overshadow Election News on Wall Street

Dean Barber: Lots of change, still coming around the corner. But I think the vaccine for COVID-19 is probably the best news we’ve had in a long, long time. To me, it overshadows the election. 

Bud Kasper: Yeah, however, I think they have a logistical issue here. I’ve shared with you one of my clients is the lead epidemiologist at a major university. He works directly with some of these companies and everything. I talked to him back in February because I was trying to get my arms around how severe this would be. 

His point to me was, “I think it could be very, very hard on Americans.” That has come true. The vaccine that was announced with a 90% efficacy, which is huge, you know, from that perspective, but there’s a logistical problem here. 

It has to be frozen. So, how are you going to transport all these millions of vials of the vaccine? In special refrigerated trucks? I think it’s going to be a little more complicated than people realize. That might postpone when this starts to take hold, and we begin to see the disease begin to go away.

COVID-19 Vaccine Will Drive the Economy and Wall Street, not the Election

Dean Barber: Well, to me, but here’s what I think. The news that it’s there and the information that it’s going to be done, and people will be able to start getting vaccines in the not too distant future is going to drive the market. Okay, it’s going to drive the economy. 

Here’s what I think we have to do, we have to watch the direction of the markets and which sectors are getting the money. And it’s time to pay attention to bonds. Again, it’s time to pay attention to what interest rates are going to do. Because if indeed, we get the mass vaccinations and people are back to normal, we’re going to see an economy heat up. And we could see some pretty big inflation numbers and some pretty big GDP numbers in 2021 and 2022, just coming off of what we had in 2020. 

That could cause interest rates to rise. So you want to make sure that the bonds you have inside your portfolio are less interest-rate sensitive. Bonds still have to be there because bonds are always our stay rich investment. But we need to understand that bonds are not all created equal. 

We’re Here to Listen and Plan for You

The bottom line is this. Talk to us, talk to your financial advisor, and run this through your financial plan. Let’s look at the big picture here. And let’s understand what we have going forward and make sure that you stay on track. Always live your one best financial life. Thanks for joining us with this short video with myself, Dean barber, and Bud Kasper. We’ll talk to you soon.

Dean Barber Founder & CEO

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Investment advisory services offered through Barber Financial Group, Inc., an SEC Registered Investment Adviser.

The views expressed represent the opinion of Barber Financial Group an SEC Registered Investment Advisor. Information provided is for illustrative purposes only and does not constitute investment, tax, or legal advice. Barber Financial Group does not accept any liability for the use of the information discussed. Consult with a qualified financial, legal, or tax professional prior to taking any action.