Vaccine developments continue to be positive, with Superforecasters in the Good Judgment project placing a 52% probability that 25 million doses of an FDA-approved vaccine will be available by Q1 2021. Even so, some surveys suggest that only 50% of Americans are willing to take the vaccine and the demand is only slightly stronger in non-US countries. Read More
The window to passing fiscal stimulus pre-election has narrowed, but the odds of a larger scale package under a unified Democratic government has increased for 2021. If prediction markets and polls are right, a Democratic sweep opens the door for a ~$2 trillion package in Q1 2021. In all other outcomes, a series of smaller bills with targeted relief may be more likely. Read More
In 2016, early absentee ballots comprised 41% of the total, but the nature of the virus may turn a greater share of ballots by mail. State rules on vote tabulation vary, meaning vote authentication delays across 11 states including key battleground states of MI, PA, WI are expected. Read More
The future EU-UK trading relationship remains unclear as the EU contests the UK’s Internal Market Bill, which makes provisions to reinterpret parts of the prior Brexit withdrawal agreement. While the official transition deadline is December 31, the effective deadline may be as soon as this month-end to make time for ratification. A (limited) trade agreement is in the interest of both sides, so a deal is likely to be reached despite the current impasse. Read More
The Fed’s meeting codified its stance of taking a patient rather than pre-emptive approach to inflation targeting. Our evaluation indicates a slower pace of policy rate hikes, with rates unlikely to change through 2024. Read More
Despite September’s pullback, we are still constructive on this bull market as we enter the early stages of a new investment cycle. Equities will likely remain supported by vaccine progress, robust fiscal and monetary policy, and further economic recovery. Additionally, as the tech revolution transforms the economy and markets, companies with greater digital footprints may continue to drive valuations and returns. Read More
Option market pricing suggests an extended period of high volatility beginning around Election Day and lasting for months thereafter. Implied volatility jumps on November 4, pricing an S&P 500 move of nearly 3%, and remains elevated well into 2021. This dynamic reflects the possibility of final election results to be delayed and for an extended equity market reaction to the competitive race, but also for timing of vaccine news. Read More
The impact of COVID-19 across EM sovereign markets has been varied, with higher quality and more resilient issuers continuing to outperform. High yield external EMD may offer attractive spread and duration opportunities relative to US HY bonds. The local EMD outlook is contingent on FX, where we are cautious on the current macro, volatility, and carry environment. Read More
On page two, we address the market implications of key legislative agendas that both US presidential candidates have laid out in the three “Ts”: 1) tech, 2) trade, and 3) tax implications. While the campaign platforms of the two candidates differ on each, the market impact to these areas might be more digestible than it appears. Read More
With the US election nearing, Americans are putting the legislative agendas of both presidential candidates under the microscope. Currently, proposals are broad and ever-evolving, increasing uncertainty around how these platforms may turn into policies. Even so, we think the market moving issues are limited. Three key areas come to mind: 1) tech, 2) trade, and 3) taxes. To be sure there are differences in substance and style between the candidates, but the market impact of either candidacy to these areas might be more digestible than it appears.
The top of the market has drawn bipartisan attention as market concentration has narrowed. Both parties have advocated for greater regulatory oversight (antitrust for Democrats and internet freedom for Republicans) which may ultimately hinder tech growth potential. But the risks of corporate breakups are still minimal, in our view, as court-related resolutions vary case-by-case and are long in deliberation.
US-China trade relations reflect another political issue elevating uncertainty. To date, trade tariff news has on average dragged US equities by 1.2%1. A Trump administration may emphasize a unilateral approach to trade relations while a Biden leadership might rely on multilateral solutions. Methods differ but both sides are likely to continue to focus on China and globalization. Re-shoring supply chains across critical industries is a likely objective of either administration.
The Biden campaign has been vocal about hiking taxes for both corporates and individuals, while Trump’s platform hopes to expand tax relief. The reality is, with tax rates at an all-time low and federal deficit at a 10-year peak, larger US Treasury issuances will detract from right-sizing debt levels today. Above-trend economic growth may allow the US to grow its way out, but a more active role in managing debt requires increasing tax revenues or decreasing spending.
1 Based on a $10bn increase in tariff revenue from China. Top Section Notes: As of December 31, 2018. Chart shows the current US equity market industry concentration based on the Herfindahl-Hirschman Index (HHI) using 2018 US company sales. The universe of analysis is the S&P Total Market Index. Middle Section Notes: As of September 30, 2020, latest available. Analysis on impact of US-China tariff announcement on S&P 500 Index performance is based on seven key trade war announcements that occurred between May and December 2019. Bottom Section Notes: As of March 31, 2020, latest available. Tax rates for individuals and corporates reflect the historical time series for the top tax rate bucket. US Debt to GDP reflect the total public debt as percent of gross domestic product as of June 30, 2020, latest available. Goldman Sachs does not provide accounting, tax or legal advice. Please see additional disclosures at the end of this presentation. Past performance does not guarantee future results, which may vary.
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