Stocktake: Stock markets want Trump to go quietly

‘Blue wave’ would likely result in higher US economic growth, major firms say

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”.

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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.