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"CAPIS/DataTrek Research Call Recap: The Election is Not a Binary Event"

posted by CAPIS on 11/02/2020 at 12:51 pm

by CAPIS

11/02/2020 at 12:51 pm

Penned  by CAPIS Staff

 

Tuesday’s U.S. presidential election has dominated market narratives and headlines for the past
few months — in tandem with those related to the resurgence of COVID-19.

But the overall national elections i n sum do not represent a binary outcome. There are time
(delayed vs. immediate results) and party (what makeup of Congress with what President)
variables to contend with. To help better inform our clients of the potential ramifications of the
election, CAPIS hosted a research call with DataTrek Research’s Co-Founder Nick Colas, with
added market color from our own Forrest Hopper.

Colas ran market return numbers from post-WWII to the present and found that a common
assumption i s a fallacy: markets generally do not respond well to a single party having control of
the presidency and both chambers of Congress. It was a myth that was started and perpetuated
because of early ‘ 80s market returns under President Reagan. Instead, having a split legislature
and some gridlock has historically been the most supportive of bullish environments.

When i t comes to unemployment, DataTrek sees a likelihood that unemployment will remain
around current levels of 7% – 8%. Entering 2020, some 20% of the workforce was i n the
hospitality, retail, and leisure industries — those sectors particularly vulnerable to a pandemic.
The headwinds presented by continued weakness i n those areas puts a ceiling on further
recovery in the numbers, especially as the Southern states that initially helped bring the
unemployment numbers down when their economies reopened have now begun to close down
again.

What does this mean? Colas expects 2021 to be beset by recurring growth scares, pending
developments on an infrastructure plan and further fiscal stimulus packages.
Here are a few other of Colas’ expectations:

● Holiday season retail numbers will be the first key indicator to look for post-election.
● Europe’s recovery will l ag behind the rest of the world given the region’s indices l ack
exposure to technology.
● Emerging markets will benefit more from a U.S. recovery for the opposite reason.
● The “K-shaped” recovery being discussed remains the likely course — but that’s the way
it almost always is. Corporations’ expectations (and thus the market) always lead the
real economy in recovery situations.
● If high-yield spreads continue to come down, that will be supportive of small caps that
rely more so on that favorable financing.

Long story short, expect continued choppiness in the waters ahead.

For questions, information on future research calls, or assistance navigating the markets ahead,
please reach out to inquiry@capis.com and follow us on Twitter (@capisinc) and LinkedIn for
more updates and insight from our team

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