November 04, 2020
With the pivot towards postal voting in light of the ongoing health crisis, Election Day was never going to be Election Day in 2020, rather it was to be Election Week (perhaps even Election Month if the results are contested). The latter is plausible given that Trump, in his 2am address this morning, appeared to declare victory and indicated he would seek to use the Supreme Court to stop further vote counting. The President has been a vocal critic of postal voting, claiming that it allows fraud.
With millions of postal ballots still to be counted and the result in key swing states like Georgia, Wisconsin (where vote counting machines have run out of ink causing further delay), Michigan and Pennsylvania still unknown, it remains unclear as to who will take the Oval Office. At the time of writing, neither candidate had secured the 270 electoral college votes needed to win the presidency: Joe Biden held 227 votes and Trump held 213, with 98 remaining.
The Senate race is nail-biting with each side holding 47 seats at present and 6 left for the taking. Democrats need 4 more to take control of the Senate after a 6-year long Republican majority. If Biden wins the Presidency, Democrats would need 3 seats as the Vice President can cast a tie-breaking vote.
The only certitude is that expectations of a “blue-wave” are dashed. Just like in 2016, Trump substantially outperformed pre-election polling and managed to win several swing states such as Ohio, Texas and Florida with, in some cases, high margins.
The only winner on financial markets for now is US interest rates. The 10y US-T rate is currently significantly lower in the perspective of political gridlock (particularly with regard to a new fiscal stimulus package). Despite the old chestnut that equity markets hating uncertainty, major indices are currently bouncing back and forth with no clear direction set yet. Markets don’t look spooked.
To summarise, the outlook has shifted away from an anticipated Blue Wave and a Tsunami of fiscal stimulus and now the key question is to what extent political gridlock will be good or bad for the economy (a split Congress allows for “policing” of policies by the opposition, but can also lead to delays as we have seen with interminable talks on Capitol Hill with regard to fiscal stimulus).
Author: Group Investment Office