Presidential elections: “The absence of a blue wave is not necessarily bad news for the equity market”

Posted on Nov 4, 2020 at 5:38 PMUpdated Nov 4, 2020, 6:19 PM

How can we explain that the stock markets reacted in a relatively calm manner, when they were faced with the worst-case scenario, namely uncertainty about the outcome of the elections?

In some ways, the absence of a “blue wave” is not necessarily bad news for the equity market. Whether the winner is Joe Biden – but without the support of the Senate, which at this stage seems to elude the Democrats – or Donald Trump, the risk of increased taxation on companies or a re-regulation of certain sectors is is reduced. This may “compensate” for the absence of Biden’s massive stimulus package, which depends on the goodwill of the Senate. Moreover, at the margin, a re-election of Trump would mean fewer measures to restrict activity in the face of the epidemic. Therefore, the configuration may appear relatively neutral for the market, at least in the short term. The absence of fiscal stimulus would weigh on the markets if the cyclical slowdown continued.

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