The outcome of the US election has become as muddied as many feared prior to election day. The last postal ballots will be counted in a handful of key swing states in the coming hours and days and both Donald Trump and Joe Biden still have a realistic chance of taking the White House. Meanwhile, the future balance of Republicans and Democrats in Congress remains unclear.
From an investor’s perspective, the lack of resolution is the worst-case scenario for the short term.
“The financial markets hate uncertainty, which is precisely what we now have in buckets. Moreover, uncertainty on who is the next president of the USA could draw out for weeks. If Joe Biden wins the key swing states, the fallout could be an ugly and long-drawn-out process where Donald Trump and his lawyers dispute the election result,” says Danske Bank’s investment strategist, Lars Skovgaard Andersen, who adds:
“From an investment perspective you could say we have landed in the worst-case scenario. We wanted a president and we have not yet got one.”
Negative knock-on effects
The longer it takes to reach an unequivocal election result that both candidates accept, the greater the risk of short-term market volatility and price falls, according to Lars Skovgaard Andersen. This is not only due to the great uncertainty, but also because of the knock-on effects that could have a negative impact on the US economy and global equity markets.
“Not least, a new and crucially important fiscal relief package to support the corona-hit US economy and has been a long time in coming and we now risk this drawing out further. The two presidential candidates and their parties have failed to agree the scale and scope of the package, and any serious progress in the negotiations may now take even longer,” says the investment strategist.
Equity overweight maintained
Nevertheless, the increased uncertainty has not caused Lars Skovgaard Andersen to question Danske Bank’s overweight in equities.
“We still have a modest overweight in equities in our portfolios, and we would view any major falls in equity prices as a good buying opportunity. Looking at the slightly bigger picture and further ahead, we still consider the glass to be half full, rather than half empty. The uncertainty is temporary and once through it we would still expect a fiscal relief package in the US, just as we continue to expect the global economy and corporate earnings to grow in the coming year – regardless of whether the USA’s next president is Donald Trump or Joe Biden,” he says.