Election Day: Risk on as Market Bets on a Clear Biden Victory
The world is watching the United States closely on Tuesday as millions of Americans go to the polls to choose between Make America Great again, again, or Build Back Better.
According to FiveThirtyEight, Biden is favored to win the Presidential race and become the 46th president of the United States of America. The odds say that Biden would win 89 out of 100 times on November 3rd, while Trump has 10 out of 100 possibilities of victory.
However, Nate Silver, chief editor of FiveThirtyEight, said in a recent article that nothing is absolute and recalling the 2016 election, Trump's chances are ten percent, not zero.
More specifically, Joe Biden's lead in Pennsylvania — the most likely tipping-point state, according to our forecast — is solid but not spectacular: about 5 points in our polling average, without Pennsylvania, Biden does have some paths to victory, but there's no one alternative state he can feel especially secure about.
Silver also said that the current Biden position is considerably stronger than Hillary Clinton at the end of the 2016 race. Biden has broader percentage leading gaps with Trump than the close races that Hillary had with Donald.
Besides, "some of the dynamics that allowed Trump to prevail in 2016 wouldn't seem to exist this year," he said when talking about undecided voters, which are considerably lower today than in 2016. Polls and surveys are more stable than four years ago. Indeed, the market is not experiencing a Comey letter that brought an October surprise.
Surely, Republicans tried to bring it with the Hunter's emails, but the story didn't shock the electorate as Comey did in October 2016.
Biden's Lead Looks Solid, But...
According to the RCP Poll Average, a study that comprises all the surveys and polls done in the United States, Biden leads with 6.7 points of advantage. Biden has 50.7 of the percentage of vote intention, while Trump has a 44.0 percentage.
Trump is recovering, and it is actually at its highest rating since May 2020, but it looks like it is too late, while Biden is maintaining positions.
Now, the fight is in the battleground states, which this electoral cycle seems to be Pennsylvania, Florida, and North Carolina.
Biden is showing a small advantage in the polls, but the race is still too close to be called. As Silver said, everything can happen, and Trump is not over.
That being said, analyst Ashraf Laidi highlighted how the overall odds favoring the Democratic party are declining in a recent Twitter. They are still winning Senate and the White House, but the Republicans are cutting distances.
So, here comes the contested election framework. It would be the worst scenario for investment markets. We do not like uncertainty. Weeks, or even months, of political paralysis and no clearness on what will be the future of the biggest economy in the world. It would be a disaster for global markets.
Think twice. There will be no clear mandate on COVID-19 response, no clear decisions on the stimulus package, and no clear vision of what the United States will look like in the next four years.
It would fuel the dollar and gold up, push Wall Street down, and risk aversion would take the market. A big sell-off would be experienced.
So, Here Comes The Market
Well, is Biden still winning, or Trump's chances are on the raising? Well, Biden is winning the Presidential race, but the market should not take it for granted. It happened in 2016 with Hillary Clinton, and it also occurred in the Brexit referendum.
Biden is more attractive to markets for sure, and "currently, the market is betting on a Biden win," said Christian Stocker, strategist at UniCredit.
Under a Biden presidency, the US economy should be more supportive for equity markets - an economy with more stimulus programs will be perfect for the outperformance of cyclical sectors.
And you know that when talking about Wall Street, size matters. So markets are trading in risk mode on Tuesday.
How Are Markets Doing on November 3rd?
Wall Street is currently trading higher, following the lead in Asian and European stocks. It looks like investors are taking a breath and welcoming the election as they expect a Biden victory and the stop of a dirty presidential race.
The Dollar index is trading down on the other hand. With a Biden victory, the US government would approve a bigger stimulus package, and the Federal Reserve would be more comfortable to support easing measures. That would hurt the Dollar and push the Euro, Pound, Gold, and even cryptos higher.
In the case of Trump wins, markets would see a short time sell off, but the long term is also bullish for stocks and dovish for the US Dollar. However, the depth of the movements would be contained.
In the case that the blue wave fails, the Republican party would start to see the excessive debt to GDP ratio in the United States as a problem, and they will begin to cutting budgets and stimulus packages wouldn't be too big.
Finally, think about a Trump victory in terms of legacy. The United States will become more isolationist, more trade war with China, Europe, and México, and days of turmoil and social unrest in the country.
The first two years would be more on the Republican party side with budget cuts, but the second half would be a way to pave its succession. Who would be the president in the post Trump era?
Well, I am thinking of another Trump. Ivanka would become the first female president in United States history. She is a Trump, and it is all that matters for Donald.
Mauricio is a newer member of the team and a very welcome addition. He is a financial journalist and trader with over ten years of experience in stocks, Forex, commodities, and cryptocurrencies. This experience means he has an excellent understanding of the markets and current events.