Given the United States is the world’s largest economy, investors around the globe will be watching the US presidential race—and market implications—with keen interest. Franklin Equity Group Portfolio Manager Grant Bowers considers what potential election outcomes could mean for the US equity market. He also explains why he thinks investors should prepare for possible bouts of equity market volatility.

As the November US presidential election draws closer, many equity investors have asked for our views on how the election results could determine the US stock market’s overall direction. It’s an understandable concern considering we are at the point of the US presidential election cycle when President Donald Trump and Democratic presidential nominee Joe Biden are starting to debate policy issues and their plans for the US economy.

Although many investors seem to believe that a Biden win would mark an end to the Trump era’s business-supportive policies, we don’t think that is necessarily true. In our view, whichever administration is victorious will likely have to continue to tackle the most significant issue facing markets right now—the US economic recovery from the COVID-19 pandemic. We believe a Biden presidency with a split US government could actually be a favorable scenario for the market as we would expect more incremental policy proposals/shifts from the new administration.

That said, we don’t think a split Congress with either Biden or Trump as president means no meaningful US legislation will pass. We see bipartisan support between the Democrats and Republicans in policies related to continued fiscal support for the economy, a long-awaited infrastructure bill and trade.

US Elections: Areas of Bipartisan Support