New article from Tatton Investment Management: US Election Update

4 November 2020

As we are turning to the news this morning, the US election has yet to produce a clear winner, but has already resulted in a big loser – the pollsters. At the time of writing, there is a distinct possibility that Donald Trump will retain the presidency and the Republican Party the majority in the Senate. After pollsters predicted a landslide victory for Biden and the Democrats, this outcome would be just as big a shock as Trump’s first term victory four years ago.

But the situation is even more precarious this time. In a number of key swing states, many of the mail-in ballots have not yet been counted and could shift the balance back in favour of the Democrats and Biden. The huge volume of mail-in ballots of this COVID-hit election is making it so much harder to call the result on the traditional counting measures normally relied upon during election night. It is therefore not surprising that we’re at an impasse.

So, what is the likely impact on markets, and therefore investors? There are two important points here. First, markets dislike nothing more than uncertainty, and second, they dislike civil unrest even more. As we have written in The Tatton Weekly, before markets as a whole care little whether it is Trump or Biden who emerges as the winner in the end, but different sectors will benefit more or less under Biden or Trump (e.g. green energy vs. oil).

Thus far, market reaction has been remarkably calm given the level of surprise and uncertainty that election night has brought. This may well be because there was nothing to note yesterday – or overnight – on much-feared outbreaks of violence around polling stations. Trump – in his trademark polarising style – did the opposite to Joe Biden’s ‘be patient’ calming message, calling for further counting to stop and suggesting his side would intervene in the further counting process via the Supreme Court. However, as all who have observed Trump for a while know, this was nevertheless a constrained address compared to the rhetoric he could have used if he really wanted to stir up trouble.

For the time being, the 2020 election appears to have left markets in a state of suspense and relative calm, confirming our view that a major market upset is unlikely. However, early market indicators suggest investor sentiment in the US is stronger this morning than in the rest of the world, also confirming our belief that a Biden presidency is seen as better for global growth and a broader post-COVID cyclical recovery, whereas a Trump presidency would more likely result in a continuation of the status quo.

As noted before, the US election has the potential to cause considerable market volatility, but over the medium to longer term will not change the global direction of travel of economic recovery. For the moment, things are calm, but this could still change over the coming hours or days. We are therefore content to have completed the portfolio changes we flagged at the end of October,  through our trades in the Overlay funds. We will now step back and wait while the dust settles. As always, the best advice for the long-term investor seeking consistent investment returns is to ‘keep calm and carry on’.

Thank you for your interest – we will keep you updated should further developments merit specific comment.
 

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