US Elections: President Trump victory with a split Congress, the most positive outcome for financial markets – HSBC

The US Election season is now well underway, with Congressional and Presidential elections set for November 3. Strategists at HSBC believe there are three possible outcomes and analyze the investment implications of each scenario. The fourth, a Republican sweep, is considered highly unlikely as Democrats are expected to keep control of the House. 

Key quotes

“Status quo: Victory for President Trump, with a split Congress. In this scenario, everything remains the same. This would be the most positive outcome for financial markets, simply because it provides the most continuity and clarity around policy.”

“A Biden victory with a split Congress. Expect a small negative impact for markets short-term. Biden is an advocate for higher taxes and greater regulation of key sectors like technology so markets may react negatively immediately. But fiscal stimulus may also increase, boosting the economy and helping markets recover. Moreover, if Republicans keep control of the Senate, many of Biden’s current proposals may not be approved by Congress. This ‘gridlock’ could ironically be good for markets in the months following the US Elections since Biden’s planned changes to the tax and regulatory environment would be more restricted and markets can focus instead on a strengthening economy supported by fiscal and monetary measures.”

“Democratic Clean Sweep: a Biden Presidency with a Democrat-controlled Congress. This would initially be negative for financial markets, but they could soon rebound (after an initial bout of volatility) if spending is raised to stimulate the economy.”

“Trump victory: positive for US domestic stocks, the energy sector and high yield bonds.”

“Biden victory: positive for European stocks and green investment themes.” 

“Technology stocks: we are optimistic about tech stocks in either scenario. Even with a Biden victory, we think regulation will take time to materialise, while the accelerated digital adoption among businesses and consumers continues to make technology companies attractive. Overall, tech stocks have been volatile in recent weeks but we see recent profit-taking as temporary.”