Stocktake: What result do markets want from US election?

It’s best to keep an open mind and not let one’s politics affect one’s investment outlook

Donald Trump and Joe Biden square off during the first presidential debate. Photograph: Jim Watson, Saul Loeb/AFP via Getty

Donald Trump and Joe Biden square off during the first presidential debate. Photograph: Jim Watson, Saul Loeb/AFP via Getty

 

Today is US presidential election day. What result do markets want?

It depends on you ask. For months, the prevailing narrative was that a blue wave (the Democrats winning the presidency and both houses of congress) would be bad for stocks. That narrative is “dead”, UBS said recently, echoing Goldman Sachs, Moody’s Analytics and others who focus on the bullish implications of a blue wave and the increased likelihood of greater fiscal stimulus.

Still, not everyone agrees. JPMorgan analysts say the best outcome would be an “orderly” Trump victory, while billionaire investor Stanley Druckenmiller argues higher taxes under a Biden administration would eventually weigh on equities.

Additionally, some Biden bulls aren’t actually that bullish. Goldman Sachs, for example, sees the Democrats’ policies as better for growth but estimates stocks will likely gain about 10 per cent by mid-2021, no matter who wins. Morgan Stanley is similarly speculative; it thinks a blue wave could catalyse an initial sell-off, but sees any Biden-related dip as a buying opportunity.

Overall, the main market arguments for a blue wave are: fiscal stimulus; lower threat of trade wars; having a stable president who doesn’t do crazy things. The main market arguments for Trump are lower taxes and less regulation.

Overall, it’s best to keep an open mind and not let one’s politics affect one’s investment outlook. As Validea Capital’s Jack Forehand puts it, “no matter how strongly you believe that the world will be a better place if your preferred candidate wins, that doesn’t mean that the stock market will be”.

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