U.S. elections are still ongoing

The outcome may yield a “low and slow” growth backdrop—but is that a bad thing?

Low and slow

Texas is famous for many things: the Alamo, the Cowboys, country music, its energy industry, and for being home to multiple former U.S. presidents. But perhaps the most Texas thing about Texas is good old-fashioned Texas barbeque.

A smoked brisket in Texas is the best in the world, and as any seasoned pit boss will tell you, the secret to achieving the perfect brisket is to cook it low and slow (that’s low heat and many, many hours on the smoker…too much heat, and it’s ruined). 

As investors anxiously await the outcome of the presidential election, low and slow may prove to be a useful mantra when it comes to understanding the path for markets. Consider the last economic cycle from mid-2009 through the start of 2020:

  • GDP grew an average of around 2% per year.
  • Core inflation averaged a mere 1.6%, only rarely breaching the Fed’s 2% target.
  • The 10-year U.S. Treasury yield averaged 2.4%.
  • The S&P 500 soared off of recession lows, generating a cumulative total return of nearly 500%.


So what about the 2020 election says low and slow to us? It has to do with the concept of the Blue Wave. Heading into the election, polls suggested a distinct possibility of a Blue Wave scenario, whereby voters might sweep Democrats to significant majorities in the House and Senate, along with a Biden White House.

So, pollsters were confounded yet again. While it’s still too soon to call the outcome of the elections, it’s probably safe to say that a large Blue Wave is essentially off the table. Sure, it’s technically possible for Democrats to tie the GOP for 50 seats in the Senate, with the Vice President holding the tie-breaking vote…but that’s a far cry from a larger majority implied by a big Blue Wave. And this difference matters tremendously.

For one, the odds of a massive, multi-trillion dollar stimulus package have collapsed along with the prospects for a Blue Wave. This should alleviate any risk of overcooking the economy, allowing both inflation and rates to stay in check for much longer. However, millions of Americans remain unemployed because of the fallout from the pandemic, and many small businesses remain under strain. We continue to believe the federal government needs to and will deliver a phase four pandemic relief package in due time to offer some relief, but it’s likely to be on the lower end of estimates. We expect markets to take that in stride. Moreover, any major changes to tax policy are less likely with divided government, so those most concerned about tax increases can breathe a sigh of relief.

Market action seems to confirm this thinking. Since Tuesday, 10-year Treasury bond yields have dropped by -10 basis points, and the yield curve has flattened (a hallmark of a slower growth outlook). On the equity side, investors flocked to areas of the market with demonstrated track records of resilient and above-market growth: Mega-cap tech names soared, propelling the tech-heavy NASDAQ 100 Index +7.1% higher and helping the S&P 500 clock a +4.2% gain. When growth is scarce, things that grow are more valuable. Volatility went from an outright boil to a simmer (the VIX Index fell from 37.3 heading into Election Day to 27.6) as investors gained more clarity on the contours of the outcome.

Ultimately, regardless of who wins the White House, it looks increasingly likely that we are in for more divided government. This lends itself, by its nature, to a low and slow cycle. So how do we think investors should position portfolios for the current environment?

  • Lean into megatrends to find growth: Digitization is disrupting the way we work, socialize and operate in daily life. Advancements in healthcare are making medical solutions more effective and accessible. Scarcity of resources, improving economics and global government initiatives are bringing sustainability to center stage. The election doesn’t alter the trajectory of these trends, and we think investment opportunities that enable or benefit from them offer compelling upside opportunities.
  • Seek out yield to generate income: Income streams can help smooth out portfolio returns and contribute to compounding growth. Yield is hard to come by, but we see fertile ground for credit pickers in U.S. and emerging markets.
  • Bolster portfolios with defensive assets to navigate volatility: Volatility is a feature, not a bug, of investing. Even with the election (almost) behind us, it’s only a matter of time until a new wildcard emerges to cause short-term market jitters. Allocations to high-quality assets and differentiated return streams—be it core bonds, blue-chip dividend growth stocks, tactically managed hedge funds—can help a portfolio “zig” when the market “zags.”

As the last ballots get counted and we get closer to a clear election outcome, J.P. Morgan is here to help you navigate your investment and planning decisions. 

All market and economic data as of November 2020 and sourced from Bloomberg and FactSet unless otherwise stated.

We believe the information contained in this material to be reliable but do not warrant its accuracy or completeness. Opinions, estimates, and investment strategies and views expressed in this document constitute our judgment based on current market conditions and are subject to change without notice.


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