In all the time I’ve been analyzing markets, I’ve found the best insights come from empathy. Sometimes it’s best to try to imagine you’re a fly on the wall when an important meeting is taking place. Alternatively, we can imagine what we would do if we were making decisions.

The financial media speculates every day on whether the competing parties in the impending U.S. election will agree upon a new stimulus package. Every time it looks likely, the stock market rises. Every time it appears unlikely, the stock market falls.

Polling has consistently put Joe Biden ahead of Donald Trump, and often by a wide margin. However, the Democrats are fearful 2020 will be a repeat of 2016. Back then, the polls also appeared to be in their favor, but they lost the election. That visceral experience is burned into the psyche of the party’s leadership. It is unwilling to take any risks this time around. That’s why the Biden campaign warned against complacency over the weekend.

It’s probably taking what it considers a pragmatic approach. If the Democrats win a clean sweep, they can introduce whatever stimulus package they want. If they hold the House and lose the Senate and presidency, they can still go back to the deal on the table right now.

The simple conclusion is they don’t have a political incentive to make a deal right now. That’s especially true because they can still blame economic weakness on the current administration.

By that logic, the two sides may still be talking, but it’s looking increasingly unlikely we’ll have a deal before the election.

Many people are now also considering what the implications would be of taxes rising next year. That is really potentially possible only if the Democrats win a clean sweep.

Nevertheless, it’s smart to think about these kinds of outcomes before they’re a problem.

There are four kinds of taxes that could be hike targets. These are corporate taxes, personal taxes, capital gains taxes, and estate taxes.

Joe Biden has said in plain English he wants to undo half of the Trump tax cuts. That will be a priority if the Democrats win a clean sweep. As investors, we buy stocks, not countries. Even if there’s a big stimulus package to take the sting off of tax hikes, it won’t fall evenly on all companies. Hikes will inconvenience some companies more than others. The reality is businesses will seek to pass on higher costs to consumers.

The Democrats’ tax plan is to pile taxes on people earning more than $400,000 a year. That will up the incentive for higher earners to move to lower-tax states.

Perhaps the most important for investors is the potential change to the capital gains tax. The Democrats want to raise it to 39.6%, while the Republicans want to drop it to 15%. That’s a wide spread. More than a few people I’ve spoken to have decided now is a good time to take profits, so they can avoid paying higher taxes later. 

Additionally, many people will begin to think about selling businesses or property ahead of any changes to the estate tax exemptions.

It’s looking like the stock market is beginning to take some of these points into consideration. This suggests if the Trump campaign is going to pull a big turnaround play out of the bag, now is the time.

All the best,

Eoin Treacy