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Investment Commentary

Not Back to This Future!

By Brian Andrew | Johnson Financial Group • July 01, 2020

5 minute read time

Today, I heard someone say: “Tell Marty McFly to let Doc Brown know he shouldn’t send him back to 2020!” With the economy-stopping pandemic, protests on social injustice, killer wasps, tremendous food shortage due to locusts, and market volatility, it just might have been too much for his DeLorean to get out of.

Add to the turmoil that this is an election year. As we approach the second half of 2020 (that’s right, we’re only halfway through!), we need to begin considering presidential and Congressional politics’ effect on markets and fiscal policy.

Last week, during a client call, we heard from Andrew Bleeker, founder of Bully Pulpit Interactive. Bleeker provided an update on the state of this year’s election and the potential impact the pandemic and social media will have on how the race is waged. In particular, he noted that the pandemic will alter the course of grassroots campaigning, as it isn’t likely doors will be opened as readily for canvassers. As we’ve seen, rallies will come with a PR price that may be too high in the face of a rising infection rate. This could mean that races will be fought online using social media and targeted messaging. As Bleeker noted, even this may be more difficult as large social media firms like Twitter and Facebook are facing more scrutiny regarding their practices for sharing political ads.

Because campaigns will move more online, ad spending will be a big deal. Bleeker shared a resource compiled by his firm, “campaigntracker2020,” that provides information on how candidates and parties are raising money.

He also noted that because the conventions will be more virtual (the DNC announced that the Milwaukee convention will look very different this year due to the pandemic), it will be harder to get the party platform and subsequent messaging across to voters. The fact that the pandemic may cause voters to take a much larger interest in absentee voting will also likely reduce the amount of time campaigns have to get their message across. Many people will have voted one to four weeks before election day!

The Prime Battlegrounds: Presidency and Senate

Last Friday, the RealClearPolitics poll showed the likely Democratic nominee, former Vice President Joe Biden, ahead of President Trump by eight points in a general election. However, and you think we’d have learned this by now, polls taken in June don’t reflect an outcome in November, especially given all the uncertainty in 2020. Still, the President has seen a decline in approval ratings and appears to be on the defensive. That’s not new; it is the mantle of every incumbent president.

Stock and bond markets will begin to churn more frequently as they digest the potential for a change in control in the Senate and the White House. Suffice it to say, the policy prescriptions of a democratic-controlled Administration and Congress will be very different than what we see today. Expect the intense rancor online to continue and even increase.


Most of the “in the trenches” political action happening online at present relates to handling of the pandemic and social unrest. But look for more focus on taxes in the coming weeks and months.

For investors, taxes are a critical topic. A change in control would likely mean an increase in both the corporate tax rate and the personal income tax rate for some subset of taxpayers. Recall that when the tax reform act was passed in December of 2017, there was a lot of time spent discussing the potential improvement in corporate earnings.

At the time, the corporate tax cut was “worth” about $8 to $10 on the S&P 500 Index’s earnings, which closed 2017 at $110—a potential increase of 8-10%. Using an average earnings multiple of 16 times, that was worth 160 points on the S&P 500 Index, which closed 2017 near 2,200. These earnings from the tax cut, then, were worth an extra 7% return.

Of course, it isn’t likely that we would revert to the same tax rates we had before December of 2017. We do know that they would be higher and that may detract from corporate earnings and put downward pressure on already below normal earnings due to the pandemic.

Almost Anything is Possible

We, along with many investors, will continue to track the potential outcomes of the election and monitor the candidates’ rhetoric for clues on how policy prescriptions can be evaluated. We’ve seen tremendous stimulus from the government already, and a change in political leadership would also change the calculus for that. While some may say that the election is already over, it isn’t safe to bet on that. There is so much at play in the next five months.

Doc Brown asked Marty who the president was in 1985, and he told him “Ronald Reagan.” Doc Brown said, “Ronald Reagan, the actor? Who’s the vice president, Jerry Lewis?” Almost anything is possible in 2020.


Brian Andrew

Brian Andrew

Chief Investment Officer | Johnson Financial Group

As Chief Investment Officer, Brian Andrew leads Johnson Financial Group's investment strategy to provide consistent, actionable investment solutions for our clients.

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