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Market reaction to US elections

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Keep calm… it’s only an election

If we’ve learnt anything in recent history, it’s that polls aren’t always that accurate. Just ahead of the US elections, the markets rallied as predictions of a ‘blue wave’ decisive victory for Joe Biden caused a great deal of optimism.

Clearly, it was too early to write President Donald Trump off at that point. Initial counting showed an early – and unexpected – lead for the incumbent. And it seemed few knew what to do with that information, so indices around the world had a little wobble. London in particular reacted badly to news of a too-close-to-call result, with a sharp fall in early trading, opening low on 4th November1, while the European Banking Sector was also trading lower (3 percent down2).

Shaken, but not stirred

If there’s one thing that investors dislike, it’s uncertainty. And the 2020 US election has given the markets a healthy dose of unpredictability.

Despite the fact that counting still hasn’t finished, and that this is likely to be the most litigious election in history, global markets have since rallied amid a general expectation that Biden has won. This may only be a short-term outlook; recounts are expected, and the Electoral College votes aren’t counted by Congress until January 6th 2021, leaving plenty of time for a hiccup.

This resilience may come as a surprise, but the power of positive thinking seems to be having an impact. Around the world, news that a COVID-19 vaccine is on its way has given a sharp boost to pharmaceuticals and the idea that we might ‘get back to normal’ has given cause for some celebration during this highly contentious race to the White House.

How does this all end?

We cannot predict what the final vote tally will look like. And, any surprises – of which there have been a few this election – could have repercussions. Right now, however, resilience is the name of the game with investors reacting in a calmer manner than might have been expected. Are we getting more used to shockwaves and riding out events with a level head perhaps?

Who can say, but as tackling the coronavirus reclaims the front pages, it seems to indicate there’s good news on the horizon for the markets too. Whether that continues into the near-term remains to be seen. One thing’s for sure; we’ve not heard the last on the US election result. And certainly not the last of Donald J. Trump.

For PIM’s take on the market response to the US election, join us at our next mid-quarterly Market Insights webinar on 3rd December

Join here ➜

References

[1] Voxmarkets.co.uk 2020 London pre-open: Stocks seen lower as US election goes down to the wire – 2020 [online] Accessed at: www.voxmarkets.co.uk/articles/london-pre-open-stocks-seen-lower-as-us-election-goes-down-to-the-wire-ba631a5/ [Accessed 12 November 2020]

[2] Voxmarkets.co.uk 2020 London pre-open: Stocks seen lower as US election goes down to the wire – 2020 [online] Accessed at: www.voxmarkets.co.uk/articles/london-pre-open-stocks-seen-lower-as-us-election-goes-down-to-the-wire-ba631a5/ [Accessed 12 November 2020]



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