The US Presidential Election 2020 - an FAQ
30 September 2020
Americans head to the polls in one of the most intense US elections in decades. We take a look at what is at stake.
10 min read
The US election result may come down to a handful of swing states. Whatever the outcome, the result will have significant implications across a range of industries of which play a role in not just the future prosperity of the US, but the shape of the global economy as well.
Retail and consumer: Uncertainty heightens volatility
Kate Calvert, a senior retail analyst at Investec, says while historically election results do not tend to impact consumer spending much, the uncertainty adds to a cocktail of issues which could potentially weigh on consumer demand.
“The retail sector already faces multiple headwinds, including the structural shift online and Covid-related consequences such as rising unemployment. While online and tech-enabled retailers have been beneficiaries, the outlook is broadly challenging for more physical retailers.
“Election-induced volatility in US stocks could ripple out to European and UK retail stocks. While domestic UK retailers are less affected by US political turmoil, the fast-moving consumer goods sector (FMCG) with international reach would appear to be more exposed,” Calvert adds.
The US is the number one market for many FMCG companies with global market exposure, says Alicia Forry, senior consumer analyst at Investec.
“The retail sector already faces multiple headwinds, including the structural shift online and Covid-related consequences such as rising unemployment. While online and tech-enabled retailers have been beneficiaries, the outlook is broadly challenging for more physical retailers.
“Election-induced volatility in US stocks could ripple out to European and UK retail stocks. While domestic UK retailers are less affected by US political turmoil, the fast-moving consumer goods sector (FMCG) with international reach would appear to be more exposed,” Calvert adds.
The US is the number one market for many FMCG companies with global market exposure, says Alicia Forry, senior consumer analyst at Investec.
“A Biden landslide would bring corporate tax hikes that could have a trickle-down impact and act as a tax raid on the super-wealthy. Moreover, while saving rates have been rising, the full legacy of the pandemic on the economy is yet unknown. Stock market volatility could also rein in spending.”
For now, Forry says the "lipstick effect" is still playing out in the US. This is where consumers prefer less costly luxury goods when facing an economic crisis. For example, consumers are happy to buy luxury French wine and organic food but forego bigger ticket luxury purchases.
In addition, Forry believes a more conciliatory tone towards trade relations would be positive for FMCG companies with global brands. For example, the Scottish Whisky Association said trade tariffs have resulted in a 25% drop in exports of single malt Scotch and Scottish liqueurs to the US since October 2019.
“Casting the eyes further, a Biden ticket would usher in a new era of more consensual politics and have a positive impact on global trade that would be supportive of consumer spending and FMCG companies.”
For now, Forry says the "lipstick effect" is still playing out in the US. This is where consumers prefer less costly luxury goods when facing an economic crisis. For example, consumers are happy to buy luxury French wine and organic food but forego bigger ticket luxury purchases.
In addition, Forry believes a more conciliatory tone towards trade relations would be positive for FMCG companies with global brands. For example, the Scottish Whisky Association said trade tariffs have resulted in a 25% drop in exports of single malt Scotch and Scottish liqueurs to the US since October 2019.
"A Biden ticket would usher in a new era of more consensual politics and have a positive impact on global trade that would be supportive of consumer spending and FMCG companies.”Forry says Biden could usher in a far more collaborative approach, which would see the US set about mending fences with international partners: “Weighing up the competing factors, we suggest a Biden win could present a modest pull-back for the stock market, while a Trump win will probably see markets rise marginally in the short term.
“Casting the eyes further, a Biden ticket would usher in a new era of more consensual politics and have a positive impact on global trade that would be supportive of consumer spending and FMCG companies.”
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EVs and renewable energy: Making America green again
If Trump secures another term in office, he will likely seek to reverse the relaxation of fuel economy standards that the Trump administration undertook vs standards set under the Obama administration, says Marc Elliott, senior analyst in energy technology.
“Efficiency or CO2 regulation is what really drives the electrification of fleets. And while the electrification of the car industry is inevitable, the re-election of the Trump administration could certainly hamper its adoption. Auto manufacturing is about scale, and if legislation isn’t helping to drive the market, the large scale manufacturing of EVs in the US will likely take longer.”
On the other hand, Elliott believes a "blue wave" under Biden - a scenario that sees Democrats winning control of the White House and Congress - would accelerate this trend and help the US maintain its meaningful presence on the global stage.
“While auto majors have been landing on both sides of the debate, a consensus is growing that accelerated electrification is the right direction of travel and some industry stakeholders have pushed back against Trump’s retrograde action. A Biden ticket, particularly if it is a clean sweep, would also be a boost to related industries and infrastructure such as charging stations.”
Whatever the outcome, Elliott says the future of autos will remain a political issue: “While everyone talks about Tesla, Asia is the leader in battery capacity – with big players like China's CATL and South Korea's LG Chem dominating the market. Europe is ramping it up too. Firms like Volkswagen are pouring capital into EVs and we are seeing joint ventures between established players deliver industry innovation.”
Biden can use this as a rallying call to lead on innovation and fight off the threat of China and the rest of Asia. Under Trump, it would be an uphill battle and the US will likely see its position in the automotive world erode.
Elliot warns Biden will have to be politically sensitive to the oil and gas industry, however, but the great green leap forward can bring with it jobs and economic transformation. “The bottom line is that under Trump, the US will lose the EV race, while under Biden, it is at least still in the race."
“Efficiency or CO2 regulation is what really drives the electrification of fleets. And while the electrification of the car industry is inevitable, the re-election of the Trump administration could certainly hamper its adoption. Auto manufacturing is about scale, and if legislation isn’t helping to drive the market, the large scale manufacturing of EVs in the US will likely take longer.”
On the other hand, Elliott believes a "blue wave" under Biden - a scenario that sees Democrats winning control of the White House and Congress - would accelerate this trend and help the US maintain its meaningful presence on the global stage.
“While auto majors have been landing on both sides of the debate, a consensus is growing that accelerated electrification is the right direction of travel and some industry stakeholders have pushed back against Trump’s retrograde action. A Biden ticket, particularly if it is a clean sweep, would also be a boost to related industries and infrastructure such as charging stations.”
Whatever the outcome, Elliott says the future of autos will remain a political issue: “While everyone talks about Tesla, Asia is the leader in battery capacity – with big players like China's CATL and South Korea's LG Chem dominating the market. Europe is ramping it up too. Firms like Volkswagen are pouring capital into EVs and we are seeing joint ventures between established players deliver industry innovation.”
Biden can use this as a rallying call to lead on innovation and fight off the threat of China and the rest of Asia. Under Trump, it would be an uphill battle and the US will likely see its position in the automotive world erode.
Elliot warns Biden will have to be politically sensitive to the oil and gas industry, however, but the great green leap forward can bring with it jobs and economic transformation. “The bottom line is that under Trump, the US will lose the EV race, while under Biden, it is at least still in the race."
“The bottom line is that under Trump, the US will lose the EV race, while under Biden, it is at least still in the race.”
Marc Elliott, Senior Energy Technology Analyst
Martin Young, a senior utilities analyst, says while Biden is making the right noises about reaching net zero by 2050 and taking the type of steps needed to deliver this vision, we haven’t seen any hard-and-fast gigawatt targets yet.
“If the US comes to the table with bold policies to tackle climate change – such as grid-scale battery storage, using renewables to produce hydrogen, and small modular nuclear reactors – we could see a real green revolution. However, should the latter drive the cost of small modular reactors down, this could be a negative for bigger utility players seeking to develop traditional nuclear builds in other markets,” he says.
He also believes a green-powered mandate would translate into markets outside the US. If the US shows real ambition, cost curves for renewables technology could come down further. Commercial-scale green power is a game-changer and there will be a huge cross-border story if Biden manages to become the US president.
The reality is the US has to decarbonise and build up its offshore wind capacity, which is facilitated by its vast coastlines, says Young. Unfortunately, Trump’s offshore energy ban along the coasts of Florida, Georgia, and the Carolinas also captures offshore wind, a clear impediment to development. But a Biden mandate could open up a significant opportunity – for the UK and international wind developers, as well as US players.
“If the US comes to the table with bold policies to tackle climate change – such as grid-scale battery storage, using renewables to produce hydrogen, and small modular nuclear reactors – we could see a real green revolution. However, should the latter drive the cost of small modular reactors down, this could be a negative for bigger utility players seeking to develop traditional nuclear builds in other markets,” he says.
He also believes a green-powered mandate would translate into markets outside the US. If the US shows real ambition, cost curves for renewables technology could come down further. Commercial-scale green power is a game-changer and there will be a huge cross-border story if Biden manages to become the US president.
The reality is the US has to decarbonise and build up its offshore wind capacity, which is facilitated by its vast coastlines, says Young. Unfortunately, Trump’s offshore energy ban along the coasts of Florida, Georgia, and the Carolinas also captures offshore wind, a clear impediment to development. But a Biden mandate could open up a significant opportunity – for the UK and international wind developers, as well as US players.
Back to the future for utilities
Meanwhile, given even oil majors are more progressive on adopting renewables than Trump, his re-election does not bode well for larger-scale initiatives.
While it may be a long time ago, Young argues utility companies were historically good at building things in the pre-deregulated era but were less successful in merchant markets. Big renewable projects supported by regulation tailwinds have provided a new opportunity to utilities with the vision to implement largescale renewable projects.
Senior oil and gas analyst, Nathan Piper, follows on the point by stating US-based oil majors may join their European counterparts to enter the offshore renewables market in a big way under a Biden presidency, given their core set of competencies. Together with ongoing divestment of legacy upstream portfolios.
“The oil majors are making a concerted effort to broaden their exposure across the energy sector. Renewables would offer a return to one of their core competencies – delivering complex engineering projects in inhospitable conditions, with visible and profitable revenue streams."
While it may be a long time ago, Young argues utility companies were historically good at building things in the pre-deregulated era but were less successful in merchant markets. Big renewable projects supported by regulation tailwinds have provided a new opportunity to utilities with the vision to implement largescale renewable projects.
Senior oil and gas analyst, Nathan Piper, follows on the point by stating US-based oil majors may join their European counterparts to enter the offshore renewables market in a big way under a Biden presidency, given their core set of competencies. Together with ongoing divestment of legacy upstream portfolios.
“The oil majors are making a concerted effort to broaden their exposure across the energy sector. Renewables would offer a return to one of their core competencies – delivering complex engineering projects in inhospitable conditions, with visible and profitable revenue streams."
Defence: Has a Democrat sweep been priced in?
Ben Bourne, a senior industrials analyst at Investec, says Trump has been supportive of defence, while a Biden ticket could drive further negative sentiment and a valuation headwind.
“However, it is clear the primary US defensive companies have de-rated against their peers, as polling and betting data suggest Joe Biden is set to win. Thus, the good news is that much of the bad news may already be in the price.
“While we are cautious of extrapolating insights from periods such as 2008/09, history would suggest a ‘Democrat discount’ in the year of an election largely reverses by the end of the following year. But this is certainly not set in stone and there could be challenging years ahead.”
Bourne notes that should Democrats secure a sweep of the executive and legislative branches, they would be in a strong position to enable higher funding for social security programmes at the expense of defence spending.
He also points out the average UK defence sector discount to the US defence primes, which was stable through the last spending up-cycle, began diverging about 12 months ago – with all but two names re-rating to a premium. This was largely driven by self-help and portfolio changes resulting in higher-quality businesses.
Meanwhile, Bourne believes both parties intend to boost infrastructure spending that will benefit the industrial sub-sectors, with Trump favouring less environmentally-friendly strategies. “The US’s essential services have been neglected for decades and this needs to be addressed by both sides of the aisle. Where policies diverge is that under Trump, it will be blacker, and under Biden, it will be greener.”
For engineers with global exposure, Bourne says the key question, aside from FX, is whether trade relations will ease. Under Biden, a more consensual approach would certainly be positive, while under Trump, we can expect four more years of volatility.
“However, it is clear the primary US defensive companies have de-rated against their peers, as polling and betting data suggest Joe Biden is set to win. Thus, the good news is that much of the bad news may already be in the price.
“While we are cautious of extrapolating insights from periods such as 2008/09, history would suggest a ‘Democrat discount’ in the year of an election largely reverses by the end of the following year. But this is certainly not set in stone and there could be challenging years ahead.”
Bourne notes that should Democrats secure a sweep of the executive and legislative branches, they would be in a strong position to enable higher funding for social security programmes at the expense of defence spending.
He also points out the average UK defence sector discount to the US defence primes, which was stable through the last spending up-cycle, began diverging about 12 months ago – with all but two names re-rating to a premium. This was largely driven by self-help and portfolio changes resulting in higher-quality businesses.
Meanwhile, Bourne believes both parties intend to boost infrastructure spending that will benefit the industrial sub-sectors, with Trump favouring less environmentally-friendly strategies. “The US’s essential services have been neglected for decades and this needs to be addressed by both sides of the aisle. Where policies diverge is that under Trump, it will be blacker, and under Biden, it will be greener.”
For engineers with global exposure, Bourne says the key question, aside from FX, is whether trade relations will ease. Under Biden, a more consensual approach would certainly be positive, while under Trump, we can expect four more years of volatility.
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