MARKET COMMENTARY

2020 Election: And The Winner Is… To Be Determined

11.04.2020 - Viraj B. Patel, CFA, FRM, CAIA

While the 2020 election results at this point remain unclear, what is clear is that markets feel comfortable with any outcome that is likely to result in a divided government. Similar to November 2016, gauging voter sentiment and polling accuracy have once again proven to be challenging.  A decisive “Blue Wave” scenario never fully materialized on election night.  So far financial markets have reacted favorably to the probability of a divided government and a continuation of the status quo. 

What to watch

With over 159 million Americans having already voted[1], heavy volumes of mail-in votes have naturally caused delays in the counting process.  This challenge was especially pronounced in key swing states such as Georgia, Michigan, Nevada, North Carolina, Pennsylvania and Wisconsin.  Given how close the polls have been in these states, it’s been difficult for the media to accurately declare the winners.  Additionally, while we cannot speculate what the courts may do, legal action has already been set in motion. Also, many battleground states have released their tentative result timelines.  Based on this, we believe more clarity should be available by the end of this week.

The Senate race: A majority remains elusive

As of today, control of the Senate was still a toss-up.  Final results for seats in Maine, Michigan, North Carolina and Georgia were outstanding but most should be available over the next few days.  Georgia is an exception given its expected run-off election in January 2021. We believe it’s important to monitor the remaining Senate races closely, given the impact the Senate majority is expected to have on future negotiations for another relief package as well as other legislation.

What can we expect in the near term?

Despite the lack of an official result last night, political gridlock seems likely with neither party gaining full control of the government. Markets have tended to greet a divided outcome favorably as existing trends usually continue after the election. However, there could be near-term risks. Namely, the size and timing of an upcoming fiscal package may be less than what financial markets had initially expected. Regardless of the electoral results, our team thinks that the clear focus for any administration will be on the path of the virus and providing fiscal support for the ongoing economic recovery. 

 

[1] Source NBC News projections, as of 11/4/2020.





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