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Stocks Sweat on Tightening U.S. Election Race, Safe-Haven Bonds Gain

Stocks Sweat on Tightening U.S. Election Race, Safe-Haven Bonds Gain

On Wednesday, the dollar and bonds gained, while share markets remained whipsawed, as results of the U.S. presidential elections proved to be a lot closer than what had been predicted by the national polls, which potentially left the outcome in doubt for days or even weeks. Democratic candidate Joe Biden took the air to state that he was optimistic about a victory and called for counting of all votes, regardless of how long it would take. In response, President Donald Trump said that he had already won and they were now just trying to ‘steal’ his win. He added that he was ready to go to the U.S. Supreme Court and fight for his necessary, if required. 

Initially, investors had bet that a possible Democrat victory by Biden could reduce political risk and pave the way for a huge fiscal aid stimulus for the U.S. economy. However, the mood changed rather quickly as Trump managed to secure a win in Florida and the race ran a lot closer in battleground states than had been predicted in the national polls. As far as U.S. equity futures are concerned, they took a rather wild ride, first rising then dropping, rising again as the votes seemed to favor trump, and then falling once more as the president promised to challenge the outcome in the Supreme Court.

The prospect of a bitter and drawn-out fight ahead meant that there was a decline in Europe’s bourses in Frankfurt, Paris, and London from 0.1% to 0.8% at their opening, as investors took into account the uncertainty ahead. Market analysts said that this uncertainty would mean there would be a lot of volatility in the market. Since things remain unclear, markets are bound to reach the smallest of news, such as any talks from Biden and Trump about legal battles.

According to dealers, investors had believed that a status quo result would reduce political uncertainty and eliminate the risk of a Biden administration imposing higher corporate tax rates. The technology sector saw some gains, with a 2.4% gain in NASDAQ futures. S&P 500 e-mini futures fell by 1% after Trump announced his intention of going to the Supreme Court, but once again climbed in early European trading. Analysts said that the movement in tech was due to the possibility of a Republican senate. Tech stocks wouldn’t fare well under a Biden administration, as Democrats are after this sector and because an increase in capital gains tax would also result in a hard hit for tech companies.

Another analyst said that a divided Congress would result in far-reaching problems for the markets, mostly because it would make it difficult to improve any pandemic-related fiscal package. Some investors decided to hedge against the risk of a drawn-out process due to the counting of mail-in ballots or the possibility of a contested election. There was a 0.7% increase in Chinese blue chips, as markets were uncertain how relations with the United States would develop from here. The odds of a clean blue wave sweep are declining by the minute.

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