High market volatility expected until US elections outcome
The second and last presidential debate in Nashville, Tennessee, last week contained less attacks than the first one. New rules and muted microphones helped to make it much more insightful. Fewer interruptions made it easier to underscore the policy differences and ideas of the two candidates, and topics such as managing the ongoing pandemic, the US foreign policy stance and American oil and gas industries were debated in a more traditional way.
Will the second and last debate change voters’ minds? The number of undecided voters seems to be lower than in 2016, which should reduce this possibility. In addition, swings in polls during the last two weeks of the race are generally low. According to RealClearPolitics, the loss of support for Hillary Clinton was 3.6 % in national polls during the last ten days of the race – the second largest loss in recent history after Bill Clinton lost seven percentage points in 1992, still enough for him to beat the incumbent at the time, President George H. W. Bush. However, in all previous elections, national polls rarely changed by more than 1% during the final two weeks.
There are several reasons why the outcome of the election is still uncertain, such as the narrowing polls in battleground states such as Florida, where Biden is leading by only 2%. That said, if we assume opinion polls are giving a correct picture of the voting path ahead of us, Biden is set for a win on November 3rd, with Democrats probably securing both chambers of Congress – the Senate race still being a close call.
Biden’s sizable fiscal push would benefit infrastructure and materials and renewable energy companies. A surprise Trump win would push technological stocks, domestic communication services and healthcare providers higher.
Uncertainty remains with regard to the timing of results. While the presidential winner should be clear relatively promptly, knowing the composition of Congress might take more time, especially for the Senate where the outcome seems to be a close call between staying red or shifting blue.
Currently, market sentiment is focusing more on the coronavirus relief package negotiations between Democratic House speaker Nancy Pelosi and Treasury secretary Steven Mnuchin. As time passes, the likelihood of a deal and its senate approval before the election appears slim. Markets could thus again focus on the election outcome in the next two weeks, with higher volatility possible the days after if results point to an unclear outcome or contestable margins in key battleground states. If results emerge relatively soon, a sense of relief might be felt across the Campaign staff of the winning candidate. The market may very well feel the same way and benefitting sectors will start to price in the outcome.