Uncertainty breeds volatility. In the markets, and in our emotions. But no matter the outcome of the US election, we’re going to be just fine. As you might recall from the September and October editions of Marche Monthly, elections do not matter to our portfolios in the long run. Trump or Biden: to us, it does not matter who wins. Yes, in the short term – as your feelings might be telling you this week – there can definitely be ups and downs. But once the election result is final, a mood of political certainty will take over and markets will calm accordingly.

At the same time, of course, the United States has a second driver of uncertainty and thus volatility in the markets: a COVID-19 pandemic that is seemingly out of control. To date, the Americans have had 9.5 million cases and 233,000 deaths. The week ending November 3rd saw 617,000 new cases, almost exactly 2.5 times the number of cases Canada has had in the full eight months since the pandemic began.

All of that said, no matter what happens, we are sticking with our strategy: own predominantly high-quality, dividend-paying companies in regulated industries. Companies that have strong balance sheets and business models we understand. That is how we design diversified portfolios that withstand the unpredictability of the political and economic environments.

Our strategy is always driven by your financial plan, which embodies our understanding of what is most important to you. And the more deeply we understand those priorities, the better portfolio managers we can be.

We have been capitalizing, and we continue to capitalize, on the market’s ups and downs by selectively buying, at attractive prices, companies that fit the above criteria. When the market goes up over the long term – as it always does – our careful purchases will truly pay off.

THE MARKET
To boot, we do not even own the market. Because your portfolio is carefully hand-selected, it is not the market – and so it continues to outperform the market. That said, it’s a good idea to understand what is going on, in the context of the election, in the market at large.

In brief, the economy and corporate profits have substantially improved since the recession that was induced earlier this year by the pandemic, and we think they will grow further over the next year, even with the high infection rates mentioned above. The US economy should reach its pre-pandemic level by 2022 and return to its prior growth trajectory the year after that. Again, while the election and pandemic have created volatility, over the long term the market will rise above.

IT’S NOT ALL ABOUT THE PRESIDENT
Let’s not forget that the US Congress was up for grabs as well. Regardless of which candidate is elected president, results are pointing to a Congress that is relatively unchanged, with Republicans maintaining control of the Senate, and Democrats controlling the House of Representatives – resulting in a continuation of legislative gridlock.

We think this would keep the Trump tax cuts of 2017 largely in place – even if Biden becomes president – for individuals and corporations, for at least the next two years. In this sense, the market likes gridlock, because a continuation of the tax cuts are good for the market.

Gridlock would also mean that far-reaching fossil fuel, health care, and financial industry regulations would be much less likely. We also doubt that the tech and communications sectors, overall, would face serious new regulations. All good for the market.

All of that said, the market isn’t always such a fan of gridlock. It has wanted a large COVID-19 fiscal stimulus package, for example, but a divided Congress – Republicans tempering Democrats, in this case – will probably deliver a more modest one.

At time of writing, Biden appears to be closing in on the 270 electoral votes needed to win the presidency. While I am certainly not going to predict the outcome of the election, it is interesting to look at the potential effects of a Biden presidency, compared to a Trump second term (see chart).