A Full Recap
By: John Norris
The Investment Committee at Oakworth Capital sincerely hopes you have enjoyed ‘The Election Projection.’ In just a few weeks, the campaign season will mercifully be over, and we will hopefully know who won in short order. At that time, we will be able to adjust our investment strategies accordingly.
In this last part of the series, we will recap our predictions from the other series, restate some of the better insight, and add a few ideas which we missed the first time around.
Our Investment Strategy
- Regardless of the scenario, we believe there will be pressure on global currencies, including the US dollar, due to the accommodative fiscal and monetary policies central banks and governments have adopted in response to COVID-19. This should make precious metals more attractive as an asset class, as investors take turns beating up the major global reserve currencies.
- Oakworth has traditionally been overweight the technology sector, and we continue to like its fundamental strength(s). However, the Democrats seem to be more inclined to greater regulate and/or tax the sector than the Republicans, at least outwardly.
- Oakworth has traditionally been underweight international assets, and is currently extremely underweight the sector. A shift to neutral after a potential Blue Wave or Democratic sweep of the Congress would be a significant shift in asset allocation.
- Should the status quo prevail, we look to shift our small cap allocation from underweight to neutral. This is because we feel it is the best possible, potential outcome for strong economic growth.
- Oakworth is currently underweight the real estate sector, and will remain so regardless of the outcome of the election(s). This is due to the continued disruption in the retail sector, and the likely increase of people working permanently from home. Both reduce the potential demand for commercial real estate.
- Although pressure on the dollar should be good for hard assets like crude oil, the energy sector looks vulnerable moving forward, both from changing global consumption patterns and increased governmental scrutiny.
- Given the current absolute low levels of interest rates coupled with the probability of massive global budget deficits, we feel it is difficult to be bullish fixed income in any scenario. However, given out current underweight to the asset class, a shift to neutral would actually be an increase.
- Regardless of the outcome, the Democrats will make a concerted push to make the District of Columbia (DC) a state. Since DC is a ‘blue stronghold,’ this would effectively be a pickup of 2 Senate seats for that party. Obviously, the Republicans will oppose this.
- The Investment Committee believes both parties will likely push for a significant infrastructure bill moving forward. The Democrats would like to focus on so-called ‘green technologies,’ and the Republicans would like to make significant, necessary repairs. Either will be expense.
- Hopefully, Washington will realize he security sensitivity of having stretched, global supply lines. We envision a greater push towards some form of ‘protectionism’ in a number of different sectors, services, and products. You will be surprised at what becomes a matter of national interest!
- A close election determined by mailed-in ballots in a key state like Florida or Pennsylvania would be a worst-case scenario, as this would delay the results and both parties would cry ‘foul’ during the process.
- It is conceivable the left-side of the aisle in the Congress will push for a major revision or dismantling of the Electoral College to avoid another outcome like 2016. This will be a wasted effort, as it requires an amendment to the Constitution and there is no chance three-quarters of the states would vote to ratify it.
- Finally, we believe the COVID-19 pandemic will be less ‘politicized’ after the elections. This will likely result in a more effective cumulative response from the government.
Again, we hope you have enjoyed our ‘The Election Projection’ series. Obviously, no one can predict the future with certainly. Further, these are simply the views of the Investment Committee at this time, and are subject to change without notice.
With that said, here is to hoping we can soon get back to being just Americans, as opposed to Democrats or Republicans, in a few short weeks. It would be refreshing to focus on what unites us as a country, as opposed to what divides us. If we remain as divided as we are currently, let alone if it gets worse, our next ‘The Election Projection’ might not be as optimistic as this one has been.
Read the full 2020 Election Projection series here:
As always, nothing in this newsletter should be considered or otherwise construed as an offer to buy or sell investment services or securities of any type. Any individual action you might take from reading this newsletter is at your own risk. My opinion, as those of our investment committee, are subject to change without notice. Finally, the opinions expressed herein are not necessarily those of the reset of the associates and/or shareholders of Oakworth Capital Bank or the official position of the company itself.