US presidential elections will be held on November 3rd. At the same time the House of Representatives and a third of the Senate are elected.

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In current polls, the Democratic challenger Joe Biden is clearly ahead of the incumbent Donald Trump. But this was the challenge Trump successfully overcame last time. Also, due to the complex US electoral law, the deciding factor is victory in the so-called "swing states" and thus the majority among the electoral men or women. Here too, things are anything but settled for Trump. The Economist developed a statistical model with which it forecasts the outcome of the elections in all states. The result is currently clear here: Joe Biden would win 344 of the required 270 voters. According to the magazine's calculations, his probability of success is around 90%. Important caveat, however. In 2016 the Economist forecast a win for Democrats in the presidential vote as well in the Senate and both predictions failed. Since the last election at latest, we have come to know that not whoever leads the polls or wins the most votes will necessarily become the president, ultimately.

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But the above notwithstanding, what could a Biden victory mean for stocks? In addition to presidential elections, the composition of Congress is also decisive for future policy in Washington. While the House of Representatives is likely to remain firmly in the hands of the Democrats, a neck-and-neck race for a majority in the Senate is currently looming. Republicans are currently in charge (53 to 47 votes), but will have to defend significantly more seats in the Senate in the fall (23) than the Democrats (12). A possibility thus lies in wake that Joe Biden will not only become US President, but will also be handed a double parliamentary majority.

 

Biden's electoral platform stands for higher corporate taxes, more restrictive environmental standards and stronger regulations. An election victory for Biden would be rather negative for US stocks. Biden wants to raise Trump's significantly reduced corporate taxes up again. He is aiming for a basic tax rate of 28% (currently: 21%). It is doubtful whether he would actually implement this plan in the short term, in view of the negative consequences of Corona. Importantly, higher taxes would basically have negative consequences for equities: corporate profits would suffer. The extent depends crucially on the exact design. If Biden were to introduce minimum taxation in addition to the generally higher tax rates, this could reduce reported corporate earnings by up to 10%. Moreover, we expect dividend growth and the volume of share buybacks to suffer - two major price drivers for US equities. Wealthy private households will also have to dig deeper into their pockets. According to the plans, the top tax rate is to be raised again significantly, social security contributions are to be paid on up to US$ 400,000 annual income and tax relief for long-term investment income will be slashed for assets of US$ 1 million or more. Another central demand from Biden's election campaign program is a higher minimal wage. This will be a further burden for US employers. Trump in contrast, has pushed for the deregulation of key industries, while Biden wants to regain more state influence, especially in the healthcare sector and the financial industry and he seeks to tighten environmental regulations for companies significantly. The US fracking industry, which currently accounts for over 10% of US industrial production, would also be severely affected.

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