As the day came to a close in Singapore on Wednesday 4 November there was still no clear outcome from the most expensive US election in history. What was already clear, however, was that, like 2016, it had become a far closer presidential race, and a far more divisive one, than was expected.
As at 12pm (GMT) the popular vote was almost evenly split with Democrat candidate Joe Biden holding 50% and President Donald Trump 48% of the total votes counted by then. The all-important race to secure 270 electoral colleges and so become president stood at 238 for Biden and 213 for Trump.
With an estimated 80 million mail votes, huge numbers still to be counted and different rules governing such practices in every state, the results from key ‘swing states’ such as Michigan, Pennsylvania and Wisconsin could still be days away.
However, Mr Trump gave a clear indication of the likely course of the next few days when, just before 8.00am (GMT), he, declared himself the winner of the election and warned from the White House of the “fraud on the American public” and the attempts to “steal the election” from the Republicans. He then threatened to ask the newly Republican reinforced Supreme Court to cease all further vote counting (despite the millions still to be counted).
Predictably, Mr Biden, responded that the election wasn’t over until “every ballot was counted” while his party made clear that its army of lawyers was waiting to jump into action.
When the dust settles…
Although we may still be days or even weeks (depending on subsequent legal action) away from a decisive outcome, what’s become clear is that we haven’t seen the much-trumpeted ‘blue wave’ – namely a flood of Democrat support enabling it to take control of both the White House and the Senate.
For many observers, this is seen as a positive for US equity markets in the short term as it will curb the more extreme policies that might result. As at Wednesday morning, the Democrats were expected to retain control of the House of Representatives while the Senate race was still too close to call.
Below is a table that shows what’s broadly expected in the three key scenarios that could result.
As Paul Craig, portfolio manager at our sister company Quilter Investors observes, “The FTSE 100 Index responded positively to the prospect of a new president yesterday with a gain of over 2%. This suggests that it was predicting a Biden victory, which might bring with it more heroic levels of stimulus – pushing bond yields higher and helping to buoy financial and cyclical stocks.
“However, the results thus far are not as investors were expecting, asset prices remain within a range suggesting that’s there’s still no clear election victor. What markets everywhere want most,” he says, “is a clear outcome and a clean transition of power in January – neither of which is guaranteed right now.
“The biggest risk for investors is that we see a repeat of the 2000 election result which was contested in the US courts for almost a month. The uncertainty of this caused markets to retreat until the outcome was finally declared.
“So far, we’ve seen signs that banks, energy and mining stocks are declining while healthcare stocks are rising, suggesting an unwinding of the more extreme Biden positioning that markets have adopted. We’ve seen the same move in Treasury markets with yields falling to reflect the reduced risk of a ‘blue wave’.”
Waiting for news…
One of the biggest impacts to markets of a delayed election outcome is that it inevitably postpones America’s latest, and already overdue, stimulus package.
As Quilter Investors portfolio manager, Stuart Clark observes, “A swift resolution to the usual partisan bickering that has delayed the package so far would have greatly buoyed share prices,” he says.
“Markets now have to deal with the uncertainty that’s been generated by the election so far which means more market volatility until investors have a better sense of the election result. Looking a little further out, there’s also the risk that, if he’s defeated and has no recourse through the US courts, we could well see a disgruntled Mr Trump using his remaining months in office to burn as many bridges in the international community as he can, effectively salting the ground for his successor.”
Which sectors and industries could be impacted by the US election result
Source: Quilter Investors
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