On September 23, Keel Point hosted its 2020 Election Insights Webinar. During the webinar, three of Keel Point’s top staff discussed the upcoming presidential election and the economic, market, tax, and estate impacts it may bring.
The event has come and gone, but here are a few highlights.
How the U.S. Presidential Election Impacts Investments Before the Election
Each of the speakers made it clear that they believe the best option is to stick to your financial plan if your risk tolerance allows it.
“Abandoning your financial plan just because of uncertainty and heightened volatility in the market or trying to time the market, never bodes well,” said Steven Skancke, Keel Point Cheif Investment Officer.
How the Markets Respond After a U.S. Presidential Election
Skancke talked at length on the typical market responses following a U.S. presidential election. He shared that while there will still be monetary and fiscal stimulus promoting public health, employment, and consumer and business confidence, the approach may be different.
“We know it’s going to be volatile. It’s going to be a wild ride. In that turmoil, we have continued to see markets perform in a positive and constructive way,” says Skancke.
What to Expect if the President Gets Re-Elected
Skancke shared that President Trump cut corporate taxes by only half a trillion dollars over 10 years. That is expected to remain the same should he be reelected.
Douglas Andre, Keel Point Family Office Counsel, indicated that some of the current policies of President Trump’s are set to automatically revert in 2026.,
The gift/tax exemption amount (currently at $11.58 million) is scheduled to automatically reset to the pre-2018 levels of approximately $6 million.
Similarly, the 2017 Tax Act initially lowered the highest-individual income tax rates to 37%. It is scheduled to reset at 39.6% in 2026.
This provides some certainty as to what might transpire if congress does nothing.
What to Expect if a New Party is Elected
Much of the discussion about a win for the democratic party was tied in with the potential for a Democratic sweep. A sweep is when a single party wins the presidential election and has control of both the House and the Senate.
Skancke provided a brief snapshot of what to expect from a potential Biden administration.
His summation was that taxes will increase by over $5 trillion over the course of 10 years, that spending will almost immediately increase by $8 trillion, and that the deficit would increase from its current point of $3 trillion.
Skancke encouraged clients to speak with their advisor immediately if they foresee transactions or tax-sensitive planning that could be adversely affected by a higher tax rate. They should be organized with a December 31st date in mind.
Andre stated that gift/tax exemption and highest-individual tax rates would simply return to the currently proposed 2026 rates more quickly should there be a Biden administration.
Andre also emphasized that there is always a difference between what gets stated in a campaign and enacted.
“I sort of view the campaign proposals coming out of a Biden administration as the first volley of a negotiation,” says Andre.
Andre made it clear that the changes former Vice President Joe Biden might make primarily affect high-income individuals and corporate tax rates.
He also warned that future tax legislation has the potential to be enacted retroactively.
The Effects of a Divided Election
Skancke detailed the unique aspect of this election: the mail-in ballots and Robert Mayes likened it to the 2000 hanging chad.
Skancke and Mayes discussed the likelihood of knowing who won the White House the day before the election.
“It is very likely that we won’t know for about two weeks what the first count of all these ballots tells us,” says Skanke.
Skancke elaborated by stating after the first count there is likely to be recounts and challenges up until January 6th.
Mayes summarized the chaos of a divided election such as this by saying, “even if it appears to be disorganized and chaotic, there is constitutional framework around it.”
The Specific Stock Market Sectors Influenced by Elections
During the webinar, Skancke showed statistics from the past 20 years that indicate who becomes president does not affect the stock market much over time.
Should You Change Your Investment Allocation Because of the Election?
Andre encouraged a “wait-and-see” approach rather than accelerating large gain realization.
“I’m always a little hesitant to make large decisions based on what might happen or even based on proposed legislation. Granted, you have to mitigate risk and there are always some steps that make sense regardless of election results.”
To close out the webinar, Robert Mayes shared a useful anecdote.
“Four years ago, we were in the same place in many ways with Hilary Clinton versus Donald Trump. We were trying to decide what would happen in that election, but the investment team had already anticipated both scenarios.”
He shared that even though it seemed Clinton was the clear winner, the investment team was not caught off guard by the election of Trump. They were prepared.
Robert Mayes is the Chief Executive Officer of Keel Point. Mayes was the CEO and founding partner of BlueCreek Investment Partners and joined Keel Point through the BlueCreek/Keel Point merger.
Steven Skancke is Keel Point’s Chief Economic Advisor and works in Keel Point’s Washington D.C. office. He has over 40 years of experience and has formerly served on the U.S. Treasury’s economic policy team and the White House National Security Council.
Douglas Andre serves as the Family Office Counsel of the Horizon Family Office Team. Before joining Keel Point, he was a partner with Ivins, Phillips, and Barker in Washington D.C. where he focused on domestic and international income tax and estate planning matters.