Michael Cembalest: investors should worry about Biden

Michael Cembalest, chairman of market and investment strategy, JP Morgan Asset & Wealth Management

Opinion polls in swing states suggest that Joe Biden’s chances of winning the US presidential election in November are rising, says Michael Cembalest, the top investment strategist at JP Morgan’s $2trn investment-managment arm. And the chances of the Democrats conducting a clean sweep of the presidency, the House of Representatives and the Senate are now around 45%, according to political-betting markets. So investors need to consider the implications for US stocks if Biden (pictured below) and his party end up with full control for the next few years.

While some voters see the former vice president as an establishment candidate, “I wonder if the people in question have looked at Biden’s policy positions”. On taxation and antitrust enforcement (ie, business-competition laws), as well as healthcare and clean energy, “this is a very progressive economic agenda”. 

Reversing Donald Trump’s corporate tax cuts might take 200-300 points off the value of the S&P 500, due to their impact on earnings at a time when valuations are high. Tougher antitrust rules could target the tech sector, with its high levels of concentration and consolidation: the revenues of the 15 largest tech firms amount to over 8% of GDP, close to the near-9% peak that the 15 largest industrial firms reached in 1969. That might be a headwind for markets, given tech is generating the highest sales and earnings growth and “has more than doubled the return on the rest of the stockmarket since 2010”.