After all the build-up, the election result is still hanging in the balance with the battle between the Democratic nominee, former Vice President Joe Biden, and President Donald Trump looking like it could take some time to resolve. In light of this I wanted to share the impact of the situation for investors.
Votes in key battleground states are still being counted, with some of the swing states yet to be called for either candidate. However, despite the close race, Trump has declared victory, and has stated that he plans to go to the Supreme Court if the final count is not in his favour.
Overall Trump has defied pre-election polls by doing better than expected, winning Florida, and holding Ohio and Texas despite some optimistic hopes from Democrats that they could spring an upset in these states. California, Oregon and Washington have gone to Biden, who is also on course to take Arizona. At the time of writing Georgia hangs in the balance. A victory there for Biden would greatly aid his chances of victory.
Thereafter all eyes are on the midwestern states, including Michigan, Wisconsin, and particularly the key state of Pennsylvania, where votes have yet to be finalised.
A tense few days or even weeks lie ahead to decide the result. But from an investment perspective there are positives and negatives to both candidates, and it remains important to keep the final result in perspective.
Trump has been questioning the validity of mail-in votes for months. Certainly these take longer to count, with 19 states allowing ballots that arrive after election day to be included, so it was expected that attention may need to be focused on what happens after election night.
The impact of the Covid-19 pandemic has placed strain on the US election system, and while more states made it easier to vote by post, these are prone to be challenged because of the increased risk of fraud. Armies of lawyers are already in place to deal with any uncertainty and disputes ahead. The results could lead to battles in court, the Electoral College, and finally, in Congress.
The last contested election between George W. Bush and Al Gore in 2000 was resolved by the Supreme Court. If the court again decides, many will look at the recent appointment of conservative intellectual Amy Coney Barrett as a Supreme Court Justice following the death of Ruth Bader Ginsburg in September as a potentially significant moment.
What does this mean for investors?
The risk of a contested election was identified by many commentators ahead of these results as being the worst outcome. That now seems much more likely and has arguably already begun, but the market has responded with a collective shrug. Why? One difference between the 2000 and 2020 is that it came as a shock to investors when the 2000 election was contested. However, President Trump has made no secret of his intention to challenge.
To borrow a phraseology from former defence Secretary Donald Rumsfeld, it is a known unknown, or something we can worry about but be prepared for this time, whereas last time it was an unknown unknown – a shock.
Before the election result is declared, we do inevitably face some uncertainty. When the result is finally decided, the fate of the next president’s major policies depends on control of Congress. It now appears unlikely that the Democrats will win control of the Senate, leaving them unable to push through significant Covid-19 coronavirus stimulus packages or tax reforms, which is positive news for growth stocks.
There is still likely to be some fiscal stimulus ahead but it will probably be a smaller package than if the Democrats were to control the Senate. Any stimulus could also come sooner if there is no need for a new Senate to be seated. However, it remains unknown whether there will be a more favourable geopolitical environment, or more red tape for businesses as would be expected if Biden is successful.
There may be plenty of fluctuations, as the market seeks to predict who will be the winner. However, bear in mind that, at present, the market has wider concerns, and remains focused on the development of a vaccine, which will be increasingly vital if there looks likely to be no further stimulus.
Whoever the new president is they will have to face the reality of increasing Covid-19 cases in the US. Tighter measures to combat the spread of the virus are a clear possibility and that may also weigh on the markets, although they will again be a known unknown rather than the unknown unknown that they were when imposed in March.
That is why we diversify portfolios across a wide range of assets and geographical regions, confident that if one area performs poorly, gains elsewhere should make up for it. While volatility and uncertainty may be high in the aftermath of an election, markets move beyond this and investors will continue to benefit from US companies with strong balance sheets and potential.
No-one can know with any certainty what lies ahead for the US, or the rest of the world, as the global pandemic and its economic impact continues. However, please rest assured that we are monitoring events carefully and will react accordingly.
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- The information contained in this article is believed to be reliable and accurate, but without further investigation cannot be warranted as to accuracy or completeness.
- The opinions expressed in this document are not necessarily the views held throughout Brewin Dolphin Ltd.