While the votes are still being counted, it seems that the 2020 presidential election is much closer than initially thought. Up until the day before the election, Democratic candidate Joe Biden was ahead by around 10% in the polls against incumbent Donald Trump. And yet, as more and more votes are counted, it seems that, not only is the election extremely close, but Trump may still come out on top. But how will the election results impact Wall Street?
Wall Street in 2020
While historically, US markets have performed better under a Democratic president, the common perception is that Republicans are better for Wall Street. However, this perception was flipped this year, as Wall Street seemed to favour Biden (more on that and the runup to the election, here).
This shouldn’t come as a surprise in 2020, since the year is already one of the most eventful in recent history. The global coronavirus pandemic is clearly the most impactful event of the year, leading to unprecedented losses on Wall Street, followed by a recovery which showed record gains for leading indices. The pandemic crippled global travel, led to the cancellation of major sporting leagues and highly anticipated events, caused oil prices to turn negative for the first time in history and much more.
Other events also had a significant impact on markets, including the US antitrust probe into big tech companies, the last-minute suspension of the Ant Group IPO and many others.
The Possible Scenarios
As the winner is announced, state by state, there are several potential reactions to each result. Here are some possibilities:
- Trump wins, Wall Street celebrates: Regardless of the background causes, there is no denying the tremendous heights to which Wall Street soared while Trump was in office. A win from him could put some investors’ minds at ease, expecting markets to continue to perform in the same way.
- Biden wins, Wall Street rises: Democrat Joe Biden is perceived as a moderate candidate, and the one advantage he has over Trump is that he is perceived as less erratic and more stable. A win by him could cause investors to be optimistic, as some believe markets will be less volatile under him.
- Trump wins, Wall Street tumbles: Some of the harshest criticism directed at Trump this year had to do with his reaction, or lack thereof, to the coronavirus pandemic. Some investors may interpret a win by him as perpetuating the current situation, which could lead to further declines in markets.
- Biden wins, Wall Street suffers: There are several reasons investors may react negatively to a Biden win, most of which derive from his being a Democrat. These include fear of higher corporate taxes, an increase in government spending on welfare and healthcare, and other policies that may impact markets.
Wall Street’s Reaction
Despite expectations by some analysts, US markets have been bullish the day before the election and futures suggest some indices may still climb when markets open. There could be a number of reasons for this, a prominent one being that some of the uncertainty and doubt may have already been played out in previous weeks. Nevertheless, once the votes are tallied and final results are in, there is still a chance of high volatility and a dramatic swing in either direction.