‘Sleeping Well’ Joe Biden

As Donald Trump has been nicknaming all of his (potential) opponents, Joe Biden got the nickname ‘Sleepy Joe’.  According to Trump, Biden is an old man who barely understands what’s happening in the world and is not able to finish long sentences. Trump argues he should be playing granddaddy instead of fighting for the presidency.


Biden is favorite

I am sure over the last weeks and months, Joe Biden is actually sleepy in the sense that he is sleeping well and Trump possibly not. In the last four years, Trump has made a lot of impulsive decisions. Most of them he got away with and things went at least not heavily against them. The US China relationship was a tricky topic but in the end there was some kind of a deal and it did not completely get out of hand. Trump thought he could do the same with the corona virus. First deny the dangers and later on state that he is doing all he can to make sure there will not be many deaths. He made some mistakes here. He underestimated the virus and thought he would be safe saying that if the US would not have more than 100.000 corona deaths, he would do a great job. He probably thought there would be only 20.000 or so and be very safe making the statement. Currently there are far over 200k deaths.

Without corona, Trump would have had a very high chance of getting reelected. The economy was strong and he did deliver on quite some of the promises he has made before his predicency. Currently, also due to underestimating the virus, the US economy is struggling heavily and many workers have been laid off. Quite often in industries, like the oil industry, that have a lot of Trump voters. For Americans, there is one thing more important than the political choice and that is employment. When voters start losing jobs, the responsible leader will start losing votes. The inability to effectively dealing with the corona virus has been leading to the current situation where Biden is having much higher odds of winning the presidency than Trump. I would say 70-75% chance that Biden will be the new leader.

Effect of Biden or Trump on the stock market

The opinions are very much divided on what the effect of four more years Trump or four years Biden will be on the stock market. It obviously is important whether the Senate stays Republican or becomes Democratic. See below my opinion on the stock market under Trump and Biden.

Trump as President

If Trump gets reelected, the general idea is that we get four more years of low interest rates, low tax rates for companies and trade wars. If he would copy his previous four years, it would probably be fine for the economy and stock market, assuming he can deal with the corona virus in 2021. But, I personally do think that Trump will become even more impulsive and do even more just what he wants. Why? He does not need to somehow behave well anymore as he cannot get reelected in 2024. Trump does what iss best for Trump, not for the USA or the world. To get reelected he needed a strong stock market. For the next four years he does not need a strong stock market per se. I think he will lose control of himself and make many decisions that will not favor the economy and the US. With Trump, one might have low tax rates, but one also has uncertainty and stability about the future. For example, how can a Chinese company invest in the US as next month Trump might have changed his opinion. If Trump wins the elections I do see the chance of an initial uptick in the stock market, but I do fear that that uptick will vanish quickly.

Biden as President

Biden is left and he is not that obsessed with the stock market. He fights for minorities and is a climate fan. But he is mild. He is not like Bernie Sanders who wants to ban the oil industry on day one. Biden is a reasonable guy who believes in transitions and understands that those take time. He is the guy who wants to have peace and negotiates in such a way that all parties can live with a certain outcome. Maybe not the most competitive way of managing and maybe not the best for Wall Street. But, Biden is boring and brings stability back to the US. Stability that investors will start rewarding soon. Next to that, especially now when the economy is struggling, he will most likely undo at least some tariffs with China and will not start bullying Europe with car tariffs. If Biden wins the presidency, I do see as a possibility that the stock market initially ticks down just because the general consensus is that Biden is bad for the market. I do disagree with that and I think investors will soon after start to be glad with the stability Biden is bringing to the economy.

Which sectors might do well on a Biden victory?

If you look back over the last four years and check which sectors did well, you can see that these are the sectors that actually would be expected to do well under Biden. Clean energy for example might do well and the oil&gas and coal sector might underperform. But I do think that Biden in the end most likely will not even change that much. He is quite ‘nice’ to the oil&gas and coal sector in a way that he doesn’t want jobs to get lost there and likes aiming for a smooth transition on the long term towards clean energy. He is not a hater of the business. I think sectors that trade a lot internationally and especially with China will do well under Biden. Tariffs might disappear and international trade will benefit from it.

See below the sectors that outperformed and underperformed over the last four years.

When do we know the result of the elections?

That is a very tricky question. Especially this year with the corona restrictions and the fact that Trump is going to do whatever it takes to win the elections. He will not easily acknowledge his loss and might fight the outcome heavily. The complete result is never known on election night. But if the difference of the votes counted is large enough, there is a good change Biden or Trump can claim the victory. Let’s assume that chance is around 60-70%.

Delay in results

For this election, there has been a massive increase in mail-in voting, mostly due to corona restructions on the day of the elections. In some states people could vote weeks before the elections, but also in many states people can still vote by mail to the date of the elections. All these votes then have to be counted and that can take a while. That is the main reason that the official result can take days, weeks or even months. As long as the race is very close, it is possible there is a lot of uncertainty in the days after the election who is the winner.

It is also possible that for example Biden wins the elections by a small majority and that Trump does not acknowledge the result and wants a recount of all votes. In the case that it takes too long to count (or recount) all the votes (has to be done before the 8th of December), then the US is facing a possible constitutional crisis where Trump will do all that is possible to remain president. This is a scenario that might spook the markets as the uncertainty around the presidency will remain for a long time.

Stock tips Newsletter

My next newsletter is coming out just days after the elections, where I will assess interesting stock opportunities. After a big event as the US elections there are always opportunities. Stocks that do see panic selling and trade for too low prices. I do expect a lot of opportunities to arise after the US elections and during the ongoing corona pandemic in the upcoming months and year.

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