You would think the result of Tuesday’s Presidential election – one that carries so much more weight than usual given the nature of the incumbent and the state of the global economy – is a forgone conclusion based on the actions of investors.
Anticipating a blue wave, the markets went all in on a green tsunami, the boards a luscious shade of emerald as the Western indices continued to aggressively rebound from their nightmarish end to October.
That they fell so fast and hard last week is undoubtedly a contributing factor to the size of Tuesday’s gains. But the main thrust of trading is based on the assumption that Joe Biden is headed for victory – 2016 shocks, mail-in vote delays, and nefarious Republicans bedamned!
The danger for the markets – and it is a very real danger – is that they are going to wake-up with a HELL of a hangover on Wednesday if the result is anything but a decisive, and stimulus-signalling, victory for the Democrats.
And there is a litany of obstacles standing in the way of that outcome. We could be in for a long and protracted tallying period thanks to the sheer number of mail-in votes, one that may involve recounts. Biden could win but the Democrats might not retake the Senate, hampering their ability to really get things done. And Trump...that’s arguably all that needs to be said, but in this specific instance means an insidious and value-eroding attempt to undermine any result that doesn’t go his way.
Just across the last few hours the race has tightened according to SpreadEX’s prices, with Joe Biden’s Electoral College Votes spread moving from 308-316 to 303-311, and Trump’s rising from 222-230 to 227-235 – roughly where he was before his victory in 2016.
Yet, as mentioned, the market’s behaviour would suggest a completely straight forward election night awaits. Ramping up the gains already seen during the morning session, the Dow Jones drove 630 points higher after the bell, surging back towards 27,550.
This boosted the European indices, causing the FTSE to climb 120 points, and the DAX and CAC to rise 2.4% apiece.
The dollar was the major loser on Tuesday, with investors abandoning the safe haven currency. The pound surged 1.3%, re-crossing $1.306, while the euro was up 0.8%, to $1.172. Again, it suggests that investors foresee a major stimulus package from a newly-Democrat White House.
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