Daniels Trading is nonpartisan and does not endorse political candidates. The purpose of this blog post is to provide objective, unbiased information on what we believe could happen in the markets depending on the outcome of the election or how the election may impact the markets. The content is not intended to convey a preference or state a position in support of any candidate, and the sentiments expressed do not necessarily reflect the viewpoints of our team members.
The U.S. general election of 2020 is one of the most unique political contests in modern history. Featuring an outspoken pro-business incumbent, a veteran challenger, and a global pandemic, the election poses unprecedented uncertainty. For those participating in the futures markets, managing volatility is the name of the game.
Democratic nominee Joe Biden has built his platform on reform issues, namely social justice and environmental stewardship. Given the focus of his campaign, economists and analysts have been divided on what a Biden presidency would mean to the world of finance. Let’s take a look at two areas where Biden’s policy, if he’s elected, will likely impact the U.S. economy and the futures markets.
Tax Cut Rollbacks
Throughout American history, taxation has always been a hot-button political issue, and 2020 has been no different. President Donald Trump and Democratic nominee Joe Biden offer contrasting views on the subject. On the campaign trail, Biden condemned Trump’s tax policies as being giveaways to billionaires and promised to at least partially roll back the 2017 Tax Cuts and Jobs Act (TCJA).
Biden’s official tax plan includes several tenets that will impact industry. Here are a few of the key points, taken from joebiden.com:
- Raise the corporate tax rate from 21 percent to 28 percent
- Double the current offshoring tax rate to 21 percent
- Impose tax penalties on corporations that ship jobs overseas in order to sell products back to the U.S.
- Impose a 15 percent minimum tax on book income
- Raise the top individual income tax rate back to 39.6 percent
- Require individuals making more than $1 million to pay a capital gains tax equivalent to their income tax
For corporations, businesses, and top earners, the Biden plan will raise tax liabilities substantially. According to Forbes, 60 percent of the hikes in Biden’s plan are aimed at businesses and corporations.
If instituted, the Biden tax plan will have profound implications, specifically in the areas of business growth, investiture, and personal consumption. Each of these factors is a bearish underpinning for the equities index futures markets, which are likely to reflect lagging corporate earnings and higher capital gains taxes on investors.
Should U.S. stock markets experience a significant correction from the “Trump Rally” of 2016-2020, related asset classes may also be impacted. To combat slowed business growth, the U.S. Federal Reserve (Fed) is likely to extend the dovish policy. This will bring on a period of weakness for the USD versus global major currencies. In turn, a devalued dollar could boost commodity pricing, including energies, metals, and ags.
The Biden Climate Plan
Since early on in the Democratic primary season, Joe Biden has been an outspoken critic of the Trump administration’s environmental policies. Citing a pressing need to “build a modern, sustainable infrastructure and an equitable clean energy future,” Biden has proposed a collection of industry-involving policies. Here are the official tenets of Biden’s environmental plan, taken from joebiden.com:
- Achieve a carbon pollution-free power sector by 2035
- Make dramatic investments in energy-efficient buildings, including completing 4 million retrofits and building 1.5 million new affordable homes
- Pursue a historic investment in clean energy innovation
- Create jobs in climate-smart agriculture, resilience, and conservation, including 250,000 jobs plugging abandoned oil and natural gas wells
- Ensure that environmental justice is a key consideration in where, how, and with whom we build
The primary point of contention between industry and the Biden climate plan is the pledge to “put the United States on an irreversible path to achieve a net-zero carbon emission economy by 2050.” This is a major undertaking—one that is sure to cause upheaval in futures markets across the board.
Immediate reductions in fracking and coal mining, as well as transitioning from gasoline and diesel fuels, are essential parts of Biden’s net-zero carbon plan. New governmental regulations in these areas are likely to send the prices of crude oil and natural gas higher in the short term.
Further, the process will place an added financial burden on businesses that are required to upgrade facilities to meet new, environment-friendly guidelines. Given these factors, sectoral economic growth is likely to stagnate as various industries attempt to modernize in adherence to the Biden environmental plan.
Politics Is a Key Driver of the Futures Markets
From the E-mini S&P 500 to copper futures, politics is a primary underpinning of the futures markets. And the 2020 election brings two contrasting political theologies to the table. Ultimately, only time will tell which is to dominate the economy over the coming four years.
To learn more about how politics impacts futures, check out the Advice and Resources portal available at Daniels Trading. Featuring expert advice from Daniels Trading brokers and renowned third parties, it’s a great place to stay current on ever-evolving political and financial dynamics.