U.S. election day is finally here. But who will win the presidency is far from certain. Anthony Okolie talks with David Sykes, Head of Public Equities, TD Asset Management, about the impact of the election outcome, and the continued drag on the economy from the COVID-19 pandemic.
- David, last week we had a huge selloff in the markets. And so far early this week, we are seeing a bit of a rally. Does it look like to you that the market is pricing in a specific outcome at this point?
- Yeah. Hi, Tony, How are you? It's an interesting question. I think to try and understand the market's move at any given day-- or any few days-- is a bit of a tricky task, and maybe one that's not particularly helpful. But some people say, look, the market sold off because they were worried that it would be a blue wave, and there'd be less fiscal discipline. And some people said, oh no. Trump is gaining ground and that's bad. So I wouldn't try and read too, too much into market moves before this election.
- And of course, there's been a lot of attention on this specific US election. Does it deserve all this focus from investors? What's at stake for the markets?
- Yeah. So, look, I think this is a big deal. I think it's a big moment in history because of the virus, and what's happened globally with the pandemic. And it's obviously a big deal for US democracy. In terms of equity markets and where I'm focused, it's important. Let's not downplay that. But I think it's really important less for the politics, and more for the policy.
And so people want to read things into this. But really we're going to have to find out, what's the composition of the executive branch? What's the composition of the legislative branch? And what's the desire and willingness to enact certain policies that can impact revenues, cash flows of corporations? And that's going to take a bit of time to decipher. But for sure, it's important. I mean, clearly, if it's a Trump win and a Trump agenda, you know that that's probably business-friendly, and you know taxes remain where they are. But if it's a blue sweep and a Biden win-- he's been very vocal that corporate taxes should go up. And fiscal spending will go up as well. So we're going to have to wait and see.
- And, you know, we've certainly seen a lot of uncertainty. The volatility index really spiked up above 40. If there's a definitive result-- either tonight or tomorrow-- either a Biden or a Trump win, do you see this volatility subsiding, or do you expect it to continue?
- Well, to take the first part of your question, if there's a definitive win, I think that's the good news in the sense that markets like certainty. You know, we've been analyzing this a lot for months, and months, and months now. And to have a definitive winner hopefully could help us understand what policies may get enacted. That's probably a good thing. Do I think volatility is going to subside because of it? Maybe a touch. But I still think the overarching market-driving event is the pandemic. It is COVID-19. And even with a uncontested election, we still have a lot of that to deal with.
- And certainly, you know, there has been talk that it's not going to be a definitive result. And the outcome could be contested, or dragged on for weeks, or even months. How do you view the market if that scenario happens?
- Yeah. I would suspect that the market isn't going to particularly like that scenario. It's a plausible scenario, for sure. You know, polls have been wrong in the past. They could be wrong again. It doesn't look at this moment like we'll have a contested election. But it certainly could happen. And if that drags on for a day, we could probably live with that. But if it drags on for a week, or a month, or longer, that's definitely not a good outcome. The market wants to see certainty. And we want to sort of get past this event and drive on. So a contested, mean result-- that would not be, I think, accepted well by the equity markets.
- And, certainly apart from the election, you mentioned you COVID-19 is in the minds of investors. And we've seen cases be spiking globally. European countries are in partial or full lockdowns. Is this even a bigger concern to the actual outcome of the US election?
- Well, to me, I think the impact on the equity market, the number one driver here is the coronavirus. It is the global pandemic. Now some people would say, with a certain occupant of the White House, maybe we can improve the infection rate and the transmission in the United States. Maybe we can, maybe we can't. But I do think that's the right focal point.
I mean, for sure, this election-- tax policy, fiscal spending-- is up for debate and up for grabs. But I do think the equity markets-- You know, we have been down, earlier in the year, very much because of this virus. And I think we have a health care crisis. And the solution we need is going to be a medical one. We need a medical response to the virus. And I think that would go a long way to reducing the volatility you talked about, and helping to give the market a bit more confidence looking forward.
- So net net looking into 2021, what's your outlook? And what should investors focus on?
- So for me, I'm going to be-- For one, I'm going to look forward to having the election over with. We've analyzed all the scenarios and the outcomes. Very, very difficult-- if not impossible-- to predict it. But I think once we get past the election, we'll have certainty about the composition of Congress, the executive branch. We can have a fair idea what policy will look like. You can get some fiscal stimulus, finally, that I think needs to be a bridge for the US economy.
Hopefully we get some good news about a vaccine, and potential antivirals. So as I look into 2021, a lot of this, to me, is going to depend on the course of the virus. And I think a lot of people have underestimated it so far. But I do think 2021 is a better year, in the sense of we will have a better understanding how to deal with the virus. Hopefully some vaccines and some antivirals to help us along the way. So I do think 2021 is shaping up to be a good year. But still a lot of uncertainty all around the virus.
- And final question. Are you going to be watching the election results tonight?
- Yeah. I will be watching election results tonight. Sadly, my kids can't play hockey this year because of the virus. And usually Tuesday is their home game. So I don't have to go to that game tonight. So I definitely will be watching, popcorn in hand.
- David, thank you very much for your time.
- Thanks very much, Anthony.