The polls have been pointing to a Joe Biden presidency for some time and betting markets have lately started coming to the same conclusion. With US stocks within touching distance of fresh all-time highs, does this mean political risk is over?
No, but the debate has shifted. A Trump victory looks increasingly unlikely – the probability of a Biden victory is now 87 per cent, according to polling expert Nate Silver – so attention has shifted to the US senate.
For some time, the assumption has been that a "blue wave" – the Democrats winning the presidency as well as both houses of congress – would be bad for stocks, given the likelihood of increased regulation and higher corporate tax rates. However, Goldman Sachs recently said a blue wave would likely result in higher US economic growth, a take that is echoed by Morgan Stanley.
The Democrats taking control of the senate would likely result in substantial fiscal stimulus, the bank says; the alternative is “fiscal gridlock, which could challenge some of our colleagues’ more bullish views on risk assets”.
Bank of America’s latest monthly fund manager survey similarly shows only 14 per cent believe a blue wave would cause the maximum market volatility.
The real risk, say 74 per cent of managers, is a contested election. Donald Trump has long seen himself as a stock market saviour, but investors increasingly wish to bid him a quiet farewell.