Election implications - Financials sector

CIBC Private Wealth US

Patricia Bannan is a managing director and Head of Equities for CIBC Private Wealth Management. In this role, she oversees the firm’s proprietary equity strategies.

Brant Houston is a managing director and co-manager of the Disciplined Equity and Income Opportunities Strategies.

In respect to financial stocks, the most significant issues related to the election are regulations, tax rates, interest rates and spending/deficits.

Under a Trump administration, regulations should continue to ease; under a Biden administration, it would be reasonable to expect additional scrutiny. In either case, the moves would likely be moderate.

Tax rates under the current administration are not likely to move dramatically. Banks were a major beneficiary of the Trump tax cuts in 2018, given their domestic focus. Any move to reverse these cuts by a Biden administration would hurt the banks. Also, increases in taxes on long-term capital gains and/or dividend income could impact how and where money is invested. Bringing long-term capital gain taxes to the short-term level may disincentivize long-term investing, raising trading volumes and volatility.

Increased government spending under a Democrat administration on healthcare, infrastructure and climate could be a double-edged sword. On one hand, higher deficits may mean higher interest rates that could make stocks less attractive overall, but help banks’ earnings through higher net interest margin. But it is also important to note that deficits are not exclusively a Democrat issue, as we have seen the deficit balloon under the current administration. Any initiative to provide affordable care to the masses could have an economic benefit if it leads to a stronger financial position for individuals. If consumer credit improves, this would be a net positive for banks. And in terms of infrastructure spending, there could be a significant improvement in the employment situation.