Still all to play for in the US

Liontrust Multi-Asset team

We awoke this morning to uproar in the US, with both presidential candidates declaring early victory, both results still possible in the race to 270 Electoral College votes, and the growing sense of  a long, protracted battle to come, potentially ending in court.

As things stand, Joe Biden has a narrow lead but key state Pennsylvania shows how quickly this could change and the unfinished nature of a voting process marred by Covid-19. The fifth-most populous state in the US accounts for 20 of the 538 Electoral College votes and Trump is currently leading there with 56%, but only 73% of votes have been counted. This picture of ongoing counts is mirrored across the US with an estimated 100 million people casting votes by mail before election day – a fact that may become central if Trump continues his early fraud rhetoric.

His language of lying, cheating and stealing sets the stage for legal challenge, so we should prepare for an election week at the very least and potentially much more.

Trump was always expected to come out fighting as he faces a binary outcome of unlikely victory or the loss and humiliation of following in George Bush Senior’s footsteps as a one-term president. Scenes of boarded-up shops for fear of rioting make for uncomfortable viewing and the stalemate shows a country riven with faultlines, not just political but also economic, social and philosophical.

In the past few weeks, markets clearly ran ahead of themselves as they got increasingly comfortable with a ‘Blue Wave’ scenario, in which Democrats carried the White House, Senate and Congress. The definitive nature of this outcome would have given the market the certainty it craves but, as we saw four years ago, American voters are confounding pundits, polls and betting odds to create a tighter race than predicted. Whoever takes the Presidency, odds of a clean House and Senate sweep diminish by the hour; this spells more stalemates and uncertainty on future fiscal packages, resulting in likely market volatility far beyond the election outcome.

Early signs suggest Republicans will retain the Senate and Democrats the House, which simply means any changes to legislation will take a long time to be enacted; such division is clearly far from ideal as the ongoing challenges of Covid-19 demand swift, decisive policy action.

In other areas, a split Congress could mean no tax rises, which would be good for domestic companies as this is one of the big policies Biden was expected to implement; in fact, we may see cuts, with Trump and his party fans of lowering taxes. There has also been talk about infrastructure spending but we would still expect that to happen, with Democrats and Republicans both supportive of upgrading a dilapidated America. Elsewhere, Trump has been an advocate of deregulation, which has helped financials, so this may continue and may also alleviate some of the expected regulatory and litigation suits against big tech.

As news continues to come in by the minute, the coming days and weeks will demand our attention. For investors, however, we would reiterate our message of patience and blocking out noise as far as possible, staying focused on long-term goals whatever short-term volatility we may have to endure.

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Wednesday, November 4, 2020, 1:54 PM