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3 Election Scenarios
and Their Potential Market Impact

See how various industries might be affected

KEEP THE BIGGER PICTURE in perspective. That’s the best guidance for investors concerned about the election’s potential impact on the markets, says Joe Quinlan, head of CIO Market Strategy, Chief Investment Office (CIO) for Merrill and Bank of America Private Bank. “The pandemic and economic reopening, corporate earnings and monetary and fiscal policy will ultimately have greater impact on markets than the election.”

Still, elections do have economic consequences. “They can influence the outlook for key sectors and industries,” says Ehiwario Efeyini, Director and Senior Market Strategy Analyst, Chief Investment Office, Merrill and Bank of America Private Bank.  A new CIO Investment Insights Report, “Election 2020 Playbook: Potential Outcomes and Investment Implications,” co-authored by Quinlan, Efeyini and Chris Hyzy,  Chief Investment Officer for Merrill and Bank of America Private Bank, offers outlooks based on three scenarios:

  • Status Quo – President Trump re-elected with divided Congress
  • Biden Win – A Biden presidency and Republicans hold the Senate
  • Blue Sweep – Democrats win presidency and all of Congress

Their investment insights and allocation exposure to the healthcare, tech and energy sectors are outlined below. For a closer look at the election’s potential impact on other sectors and the broader economy, read “Election 2020 Playbook: Potential Outcomes and Investment Implications.”

“The pandemic and economic reopening, corporate earnings and monetary and fiscal policy will ultimately have greater impact on markets than the election.”—Joe Quinlan, head of CIO Market Strategy, Chief Investment Office for Merrill and Bank of America Private Bank

Healthcare. Maintaining the status quo could mean continuing attempts to repeal the Affordable Care Act (ACA). A Biden win, with Republicans holding the Senate, could see some expansion of the ACA, though without a public option, and a blue sweep could see an expansion of the ACA, including a public option. Under all scenarios, price controls for pharmaceuticals are likely.

Technology.  A continuation of the status quo would likely see lighter regulations in all industries, including big tech. Meanwhile, a Biden win, with Republicans holding the Senate, could see regulatory efforts diluted by a Republican Senate, and a blue sweep could see tougher regulations on big tech, including antitrust laws and stricter privacy controls. Calls for an end to Section 230 of the Communications Decency Act, which offers tech companies immunity from content published on their sites, are likely under all scenarios.

Energy. The status quo could mean low regulations on fossil fuel producers, but with pricing pressure based on high supply. A Biden win, with Republicans retaining control of the Senate, could mean rejoining the Paris Agreement on climate change. However, regulations on fossil fuels could be harder to achieve. A blue sweep, on the other hand, could mean higher taxes on fossil fuel companies and subsidies for renewable energy, with the U.S. rejoining the Paris Agreement and a net-zero emissions target by 2050.

What the outcome might mean for your portfolio

Whoever wins, markets may be volatile following the election and even into the early years of the next administration, believes Hyzy, Chief Investment Officer for Merrill and Bank of America Private Bank. “Much work remains on the pandemic and other issues, all of which could impact the markets.”

With low interest rates likely to continue suppressing bond income, “we expect long-term investors to raise their equity allocations to increase potential portfolio return,” he says, adding that investors should consider rebalancing frequently amid ongoing volatility and look for tax efficiencies in light of potential changes in tax law.

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Information is as of 10/27/2020.

Opinions and hypothetical forecasts are those are those of the author(s) and subject to change.

Investing involves risk, including the possible loss of principal.

Asset allocation, diversification and rebalancing do not ensure a profit or protect against loss in declining markets.

The Chief Investment Office (CIO) provides thought leadership on wealth management, investment strategy and global markets; portfolio management solutions; due diligence; and solutions oversight and data analytics. CIO viewpoints are developed for Bank of America Private Bank, a division of Bank of America, N.A., (“Bank of America”) and Merrill Lynch, Pierce, Fenner & Smith Incorporated (“MLPF&S” or “Merrill”), a registered broker-dealer, registered investment adviser and a wholly owned subsidiary of Bank of America Corporation.

Equity securities are subject to stock market fluctuations that occur in response to economic and business developments.

Bonds are subject to interest rate, inflation and credit risks.

Investments focused in a certain industry may pose additional risks due to lack of diversification, industry volatility, economic turmoil, susceptibility to economic, political or regulatory risks and other sector concentration risks

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