US Election update - 5/11/2020
The US Elections were held on Tuesday and there is still no clear winner. Initially it looked like President Trump would be returned to power, however in the few states that are still contested, a huge change in numbers was seen late in the counting in Biden’s favour, and it now looks like Biden is in the box seat.
Trump flagged that he believes the election was stolen via mail in voter fraud. If you look at the scope of the late surge in democrat votes, this theory may sound believable, however if you look at where the late votes come from then this looks more like a last ditch effort to win the election. The late votes came from electorates that had strongly favoured Clinton in the last election so it was expected that Biden would do well in these areas in this election. It seems that votes from strongly Republican electorates were counted first in the still contested states, and then Democrat votes came in later. The main reason for this is the Democrats out voted republicans by mail by approximately 2 to 1, and the republicans out voted democrats in person by approximately 2 to 1. In states like Michigan where the in person votes were counted first, Trump held a handy lead, but as the mail in votes were counted, Biden caught up.
It will likely be a few days before we have an answer, and even then it is likely that Trump and Biden will be fighting it out in the courts. If it is anything like the Gore/Bush saga, it could take months before the loser concedes defeat.
What does this mean for the markets? Prior to the election, Wall Street was backing Biden mainly because the Democrats wanted to provide a larger stimulus than the Republicans. The presidential outcome was seen as second fiddle to the outcome of the senate and house of representatives because if the Senate and House are both controlled by the same party as the President, then it is easier for proposed policies to be implemented. If either the Senate or House is controlled by the opposite party, it makes it more difficult for the president or either party to implement their agenda. We have seen this with the Republican Senate and the Democrat House prior to the election with the Democrats wanting to increase the COVID stimulus well above what the Republicans proposed. This conflict between the Senate and the House resulted in no stimulus being passed prior to the election. The same thing has occurred in previous terms of government so it is nothing new.
If the House and Senate stay as they are, it is likely that the stimulus passed will be lower than if the Democrats take control of the Senate. The Senate is still in contention but most analysts expect the Republicans to hold the Senate. If this is the case, then we don’t expect there to be much impact on the markets at all. If the Democrats win the Senate as well as the Presidency, then there could be a short term boost to the markets due to higher stimulus, however some of their longer term policies such as increasing company tax rates from 21% to 28% and reduction in fossil fuel use could hurt the market longer term.
For now we can only wait and see!