How will the US Election Impact Global Markets?

How will the US Election Impact Global Markets?

2020 was one of the most eventful years in recent history. The COVID-19 pandemic crippled multiple segments of global markets, US and China had an ongoing trade spat and the price of oil reached unprecedented lows. But the year is not over yet, and there is at least one more major event that could impact global markets: The US Presidential Election, which will take place on November 3rd.

Recent Updates

  • October 13th, 2020: Biden is ahead in the polls, leading Trump by 8.6%; Biden is the highest-polling challenger since 1936
  • October 12th, 2020: Trump resumes campaigning around the US
  • October 11th, 2020: The White House announces Trump is free of COVID-19 and no longer contagious
  • October 10th, 2020: Trump gives first public speech since being released from the hospital
  • October 9th, 2020: Second presidential debate cancelled
  • October 8th, 2020: Trump says he will not participate in the next presidential debate after organizers announced it will not take place in person
  • October 7th, 2020: Mike Pence and Kamala Harris faced off in the vice presidential debate; no clear winner emerged
  • October 5th, 2020: President Trump is released from the hospital
  • October 3rd, 2020: President Trump tests positive for COVID-19
  • October 1st, 2020: After what has been described as the “ugliest debate ever,” former Vice President Joe Biden is ahead 7% in the polls.

The Run-up to the Election

Naturally, America and the rest of the world will be watching the election and its results closely. Arguably the most powerful and influential superpower on Earth, the US has an impact on many aspects of the global population and the presidential race is no exception. The identity of the ruling party and the commander-in-chief is relevant to most people on the planet.

The months leading up to the election are historically less favourable for US markets. Since 1922, more than half of the three-month periods before elections have been negative, as reflected by main indices. However, 2020 might have its own set of rules. The COVID-19 pandemic led to losses greater than the Great Depression, and the recovery then led to one of the most bullish runs in market history. Moreover, tech giants such as Apple, Amazon and Microsoft reached never-before-seen heights, leading some analysts to believe that we are in a bubble.

Trump vs. Biden

The candidates from both the Republican and Democrat parties are well known. On one side, the incumbent, Donald Trump, whose term coincides with one of the biggest market rallies in history, with all three major US indices, DJ30, SPX500 and NASDAQ100 reaching all-time highs while he was in office. At the same time, the coronavirus also happened while he was in office, and that led to one of the greatest drops in GDP in the history of the US.

Across the aisle, there’s Joe Biden. The 47-year political veteran is perhaps best known as former VP to President Obama. While not considered a superstar in popularity like the former president under whom he served, when he took the Democratic nomination, Biden became Wall Street’s favourite, especially because he is much more moderate than the Democrats he beat for the candidacy: Elizabeth Warren and Bernie Sanders.

It’s the Veep, Stupid

Each candidate’s running mate also plays an important role, albeit more significant on the Democratic side this time around. Trump’s VP Mike Pence is a well-known conservative and his presence as Trump’s number two in this reelection bid is less impactful. Biden’s choice for Veep, however, has been the stuff of headlines.

Kamala Harris is a well-known and extremely popular politician. She is considered extremely resourceful, assertive and an overall winner. Aside from being a seasoned, accomplished politician, she is also a woman of colour. Winning the role of VP would position her as many “firsts,” including the first female Veep (with all due respect to the fictional Selina Meyer) and the first black Vice President. Not to mention that if Biden cannot finish his term for any reason, Harris would become President.

Democrats and Republicans: Which is Better for the Markets?

For US Democrats, the cherry on the sundae is Harris’ popularity on Wall Street. While traditionally, Republicans are perceived to be the ones who serve the interests of investors, it seems that the Street favours Harris. Having the support of Wall Street also means that more money is flowing towards Democrat pockets, which has been the case this year — for the first time in a decade.

There are a number of reasons for the support Harris is garnering: first, just like Biden, Harris is much more moderate than some other VP nominees, such as Sanders or Warren, which means that some of the more extreme ideas floated by Democrats will not come to fruition under her watch. Second, she represents stability — something many long-term investors have been seeking in the rollercoaster ride that has characterised the Trump presidency. And lastly, estimates are that neither Harris nor Biden will reverse Trump’s corporate tax reduction.

Having the support of Wall Street is a feat not many Democrats have achieved. However, history shows that money managers may want to reconsider. Historically, GDP has risen more under Democrats than under Republicans, and this also leads to stock market growth. Ironically, the reason for this may be “socialistic,” as Democrats often promote economic plans that favour full-time employment, leading to more money being earned and spent.

The day After the Election

No one knows who will take the chair in the Oval Office next year, and despite Biden’s commanding lead in the polls, recent history has taught us that anything can happen on election day. After all, Hillary Clinton was all but declared the winner before Trump won the Presidency. Historically, when elections were close, markets rallied in the following months. However, with so many other technical and fundamental factors impacting price movements this year, there is no way of even trying to predict if this will be the case this year. The race is Trump vs. Biden, however, when it comes to how Wall Street behaves, COVID-19, China, big tech and bubble fears also have a vote.