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US Election Update: How the financial markets cope with uncertainty

November 9, 2020

reading time: 4 minutes

by Investment Services, LGT Bank (HK)

Blue travel

Our financial market experts provide frequent updates and insights on the US presidential elections 2020.

+++ November 9, 2020 +++

US election 2020:  a very eventful weekend

Leading mainstream US media outlets are projecting that former Vice President Joe Biden will clear the needed 270 Electoral College vote threshold, thereby becoming America's next president.  
The official vote is to be certified on January 6 by Congress, with the inauguration taking place on January 20 2021.  There are pending legal challenges on behalf of President Trump in a number of states, but market consensus is that these will not have a material bearing on the outcome.  Instead, market attention is on the state of Georgia, where two Senate seat races will be determined on January 5.  If Democrats win both in Georgia, then the current Blue Tide (split government) scenario would turn into a Blue Wave (Democrats in control of the White House and both chambers of Congress).  For the time being, we believe investors should assume that Republicans will continue to hold the Senate over the coming two years.

Market attention is returning to fundamentals: e.g. the ongoing third quarter 2020 earnings season and latest developments as related to the Covid-19 pandemic.
On the former, around 80% of companies in the S&P 500 have reported their results, with 76% beating their earnings-per-share estimates, according to JP Morgan.  Overall profits in the US are down -7%, over the same period last year.  Concerning the pandemic, broadening restrictions in Europe are skewing GDP growth estimates for fourth quarter back into negative territory, whereas the acceleration of new infections in the US likewise raises the risk of more containment measures. In our view, the market is placing significant hopes on the distribution of a safe and effective vaccine over the near term – while fading US political risks are arguably a constructive factor for risky assets, disappointments on the vaccine front could be a fresh headwind.

Stefan Hofer, Chief Investment Strategist, Private Banking Asia
Wilson Cheung, Investment Strategist, Private Banking Asia

+++ November 5, 2020 +++

US election 2020: (another) surprise outcome in the making?

Lectern of the President of the United States of America.
Photo: © American Photo Archive, Alamy.

Overnight, the battleground states of Michigan and Wisconsin were called by some media sources as having been won by former Vice President Joe Biden.
This outcome puts the Democratic Party challenger to President Trump in the lead, as per Electoral College votes, and revives the market narrative of a change of power in Washington DC.  As per writing, six states have yet to be called, but the new baseline scenario, arguably for most market participants, is the so-called "Blue Tide".  This sees Democrats in control of the White House, the lower house in Congress, and the Republicans keeping the Senate (the upper chamber).

Needless to say, these developments are accompanied with some controversy.
Media reports are that Republicans, in at least one state, have filed lawsuits and there are calls to suspend the further counting of votes, in particular mailed-in postal ballots. It remains to be seen how these challenges are met and whether the 2020 election outcome will be delayed for days, or even weeks.

As it stands now, however, the Blue Tide implies, in our view, the following: a moderate fiscal stimulus, no material changes to the corporate and personal income tax code and limited new legislative initiatives (owing to a divided government). As major legislative changes appear now less likely, somewhat paradoxically, this can be seen as being market-positive, as by definition, there is less uncertainty for investors to price. This may put US equities in a positive light over the medium term. In any event, as per writing, the road to the White House is far from over, and more surprises could be in store.

Stefan Hofer, Chief Investment Strategist, Private Banking Asia
Wilson Cheung, Investment Strategist, Private Banking Asia

+++ November 4, 2020 +++

US election 2020: a surprise outcome in the making?

Photo © hermosawave,

As per this morning, the financial market's baseline scenario of a Democratic Party sweep to power in Washington DC appears to be on thin ice.
While a number of key battleground states (Georgia, North Carolina, Pennsylvania, Michigan, etc.) have not yet formally projected a winner, the overall landscape is that the electoral status quo is preserved.  This implies that President Trump may – in stark contrast to most opinion polls heading into the election – achieve a second four year term. It further implies that the lower chamber of Congress (the House of Representatives) remains in Democratic hands whereas the Senate remains Republican.  

If the above is eventually confirmed as the official outcome, what does this imply for policy and financial markets?  
A key narrative that accompanied the Democratic Sweep was that a Joe Biden presidency would see a very significant fiscal stimulus enacted quickly; we assume that a Donald Trump second term will also see further Covid-19 related stimulus, but more moderate in scale.  We also assume that the existing broad tax policies of the Republican administration will remain unchanged, with some room for additional tax relief.  Infrastructure and Green Economy spending will likely be less of a priority, in contrast to Democrat plans.  

Stefan Hofer, Chief Investment Strategist, Private Banking Asia
Wilson Cheung, Investment Strategist, Private Banking Asia

Header visual © Chris Dorney, Alamy.

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