Investors prepare for a closed election result in the US.

A trader exits the New York Stock Exchange (NYSE) on Election Day in Manhattan, New York, New York, USA, November 3, 2020. REUTERS / Andrew Kelly

LONDON / NEW YORK – Investors were quick to adjust portfolios for a tighter and delayed US election result than many had assumed before Wednesday, and pre-election expectations of a clear Democratic Party victory in the White House elections and the Senate seemed devious.

Global stocks spun in early trading when the results of Tuesday’s national vote came in, with a final decision that now looks unlikely for days and the outcome increases the potential for stagnation complicating the possibility of a rapid increase in government spending from USA

Republican President Donald Trump won the Florida battlefield and took the lead over his Democratic rival Joe Biden in other swing states in the US, but Biden expressed confidence that he would win the election by taking three key states from the Rust Belt.

“Markets don’t like continued uncertainty and not knowing the presidential outcome and a possible loss of that for several days and that environment looks likely,” said James Athey, chief investment officer at Aberdeen Standard Investments.

In choppy trading, US stock index futures fell 1.1%, retreating from previous highs, with Nasdaq futures outperforming.

European stocks opened lower, while the MSCI Global Stock Index fell after two days of strong gains in anticipation of a decisive win for Biden and huge fiscal stimulus.

“It seems like a lot for the White House to win, we are facing a divided Congress,” said Stéphane Monier, investment director at Lombard Odier. “This has far-reaching implications for the markets, mainly because it means that any kind of recovery package from a pandemic is still difficult to approve. Our portfolios are well balanced to withstand the volatility to come. “

The US dollar rose and the yield on the US 10-year Treasury note fell.

“The US dollar and Treasuries are rebounding, which is what you would expect in terms of security trading,” said Seema Shah, chief strategist at Principal Global Investors, London.

“Markets are waking up to the idea that there is going to be a wave of uncertainty, and changes are likely to occur in the market as investors discover the implications.”

The betting market odds tightened but still favored Trump after drastically changing overnight to favor the president over Biden, according to data from three aggregators.

In addition to the presidency, control of the United States Senate was potentially at stake in Tuesday’s vote, and Democrats hoped to wrest power from Republicans.

Without ‘Blue Wave’

But some investors saw the chances of Democrats winning a big Senate victory diminished as Republicans held the line in several races that appeared to be at stake.

Markets have become obsessed in recent weeks with the prospects of massive fiscal relief stimulus to help the economy rebound from the coronavirus pandemic that has killed more than 230,000 Americans.

A “Blue Wave” sweep that sees Biden win and Democrats capture the US Senate had garnered a lot of investor attention in recent weeks and was seen as the surest path to a massive tax package that could support stocks. and accentuate the trends of a weaker dollar and steeper yield curve.

“Some of the market movements suggest that some of the more radical Democratic policies that were discussed, which were never clear that they were going to happen under a blue wave, now seem unlikely,” said David Stubbs, head of markets strategy, JPMorgan International Private Bank in London.

One dramatic move was Nasdaq 100 Index futures, which rose sharply.

Tech stocks have been seen as particularly susceptible to selling pressure out of fear of increased capital gains taxes if Democrats win, as well as concerns of increased regulatory scrutiny.

The greater chance of a Republican Senate was seen as diminishing the possibility of raising capital gains taxes and boosting technology, said Andrew Brenner, head of international fixed income at NatAlliance Securities.

Some investors see a Trump victory, which would eliminate the tax increases favored by Biden, as the best scenario for the stock market. Before the election, JPMorgan predicted an “orderly” victory for Trump as the most favorable outcome for the stock.

Since the 2016 election of Trump, who ushered in corporate tax cuts that supported stocks but also imposed trade tariffs that led to volatility, the U.S. stock market has gained more than 57% and reached new highs.

Investors remain more concerned about the possibility that the race is too close to call or contested for a while.

“The markets can coexist with any of the candidates,” said Francois Savary, chief investment officer at Swiss wealth manager Prime Partners. “The scenarios they don’t want are legal problems over the outcome and significant political unrest.”

Read next

Don’t miss the latest news and information.