Despite uncertainty, US election benefits markets

Posted on Nov 4, 2020 at 9:52 amUpdated Nov 4, 2020, 7:22 PM

The uncertainty over the outcome of the US presidential elections has not caused the markets to falter. On the contrary. Global financial centers continued their rebound, which began at the start of the week. The main European stock indices closed sharply higher. The CAC 40 rose 2.44% to 4,922.85 points, while the pan-European Stoxx 600 index gained 2.02%. The trend was even clearer on Wall Street. At the time of the close in Europe, the S&P 500 was up 2.87% and the tech-heavy Nasdaq jumped 4.27%.

The scenario so dreaded by the markets has a good chance of coming true. The election result is uncertain and could still be challenged in court, as Donald Trump has suggested. But for investors, the essential is elsewhere.

They were particularly interested in the fate of the Senate. Indeed, if the Democrats fail to regain a majority in the upper house of Congress – which is likely to happen – Joe Biden’s program will be largely called into question. “For now it is clear that the Democratic wave suggested by the polls is simply not happening”, observes Stéphane Monier from Lombard Odier.

Tech giants at the party

Investors had largely prepared for a clear Democratic victory, the famous blue wave. “There was a correction of the sector rotation which had been in progress for a month”, explains Didier Saint-Georges de Carmignac. In other words, the most rowdy stocks in October have regained the good graces of the market.

This dynamic can be seen on both sides of the Atlantic. In Europe, the healthcare sector led the rebound. Investors could be worried about any attempts to reform the Democratic sector, a prospect that is receding along with their chances of success in the Senate. Sanofi in particular jumped 6.31%, signing one of the best performances of the CAC 40.

Tech companies, which experienced weakness in October, have also recovered. The sector risked facing a regulatory offensive and a questioning of the tax cuts implemented by Donald Trump. At the time of the closing in Europe, the American champions of the sector were celebrating. Amazon, Google and Facebook all grew by more than 6%. Uber and Lyft even exceeded the 12% increase, also driven by the result of a referendum restoring the independence of their drivers.

Infrastructure takes the hit

On the contrary, certain sectors have suffered the blow. Investors have lowered their bets on massive investments in infrastructure and green energies. Bouygues, one of the rare drops in the CAC 40, fell 0.14%, while Caterpillar, the specialist in construction machinery, dropped more than 5% on Wall Street. It had jumped nearly 15% in the previous month. Invesco’s listed photovoltaic index fund (ETF) dropped more than 3% on Wednesday. With a lower chance of seeing a massive stimulus package materialize across the Atlantic and support a rise in US long rates, the banking sector was also under pressure.

The good mood could be short-lived in the markets, however. The health crisis continues to undermine economic activity on both sides of the Atlantic. “In the absence of a significant recovery plan, these issues will come to the fore at one point or another”, warns Didier Saint-Georges.


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