Markets have been facing volatility since the coronavirus pandemic started which increased as the issues regarding the elections came up, like the stimulus package that is yet not approved. With Election Day coming up, stocks will be facing another round of uncertainty. The difference is that, this time, it could be much bigger and much riskier than ever before.
Since both the potential presidents have quite opposite plans for the future of Americans, investors will be watching out if the government would be divided or unified which could be a deciding factor for the investment landscape. According to historical trends, the JPMorgan Market Insights team revealed that the S&P 500 showed increased volatility in election years than non-election years.
As for the current year’s election, a Republican win could prove positive for the market in the immediate aftermath of the elections because the party has more market-friendly policies.
“This is by no means a strong rule of thumb… Other significant geopolitical and economic events may carry more influence over the market’s direction” the JPMorgan team added.
Senate Matters More Than The President
For investors, which party takes the control of the White House is more important than which candidate wins the elections. According to Analysts at U.S Bank, market gains averaged 6.5% when the same president got re-elected or if one party kept control of the White House. While on the other hand, gains averaged around 5% if a new party won.
This indicates that investors must be looking out if any one party would be able to make a unified government: taking control of the White House, Senate, and House. According to analysts, the probability of a Democratic sweep has grown while a Republican sweep seems unlikely.
If Trump Gets Re-Elected, It Would Be “Marginally Positive” For Markets
If President Trump gets re-elected with the Congress split between the two parties, the market could expect positive returns. According to JPMorgan strategists, the reason for this is lower taxes and relaxed regulations that would counter the negative effect of ongoing trade tensions. Moreover, a report by Morgan Stanley pointed out that the increased deregulation would prove to be favorable for the telecom and energy sectors. However, the situation may be quite unfavorable for renewables.
A “Neutral” Reaction if There is a Blue Wave
If the result comes out to be the opposite and there is a “blue wave” with Democrats taking over the White House and Congress, then the market would have a “neutral” reaction, as per JPMorgan. On the brighter side, Biden plans to increase spending on infrastructure, clean energy and tech, healthcare, and education. A Biden win could also result in better U.S-China relations because then the dependency on tariffs in the negotiations would be reduced, increasing trade.
However, on the negative side, there is an increase in corporate taxes and greater regulation which will affect sectors like health care, financial services, and big tech. As of now, JPMorgan believes that the positives will counterbalance the effect of the negatives.
The big tech companies still face the issue of antitrust action and this is one issue against which both parties are planning to take action. Still, a Biden win would result to be tougher for the tech companies because according to analysts at the U.S Bank, under Attorney General William Barr, republicans would be too harsh.
Another scenario could occur where Biden wins but fails to take power in the Senate. According to Fidelity analysts, this would be less volatile for the markets since any move for change in taxes would be broken off by the GOP Senate. This would of course mean another hurdle for the long-awaited fiscal stimulus.
According to RealClearPolitics, Democrats are forecasted to win 45 Senate seats while the Republics are projected to hold 46. According to FiveThirtyEight, the probability of a blue wave in the Senate stands at a grand 77%, however, according to PredictIt’s market, it fell recently in early October to 70%, plunging to 55% on October 24.
Now that Election Day is just a couple of days away, investors stay cautious and wait for the results to be revealed.
I am Sophia william, author of World Stock Market. I have a degree in journalism from the University of Missouri and I have worked as a reporter for several news websites. I have a passion for writing and informing people about the latest news and events happening in the world. I strive to be accurate and unbiased in my reporting, and I hope to provide readers with valuable information that they can use to make informed decisions.