Weekly market recap: Biden’s night

Equities rallied as a Biden victory brings an end to the uncertainty of the 2020 US election.

FacebooktwitterlinkedinmailFacebooktwitterlinkedinmail   by Tertius Bonnin, 6th November 2020

The Hill and ABC News, two respected American news sites, opened themselves up to ridicule over the weekend after they reported on firework displays across the UK in celebration of Joe Biden’s victory over Donald Trump in the US Presidential election. Clearly American’s don’t remember the 5th November!

Nevertheless, investors may have been letting off fireworks of their own after last week’s market moves. Asset class returns are below; even with the election’s result coming down to a few key marginal states, equities rallied as an end to the long awaited US election came into sight.

Figure 1: Asset class total returns in base currency

Source: Bloomberg, EQ Investors

The biggest winner last week was undoubtedly Joe Biden who clinched the victory in the US Presidential election over Donald Trump. Yet forecasts of a ‘blue wave’ – where Democrats sweep control of the White House, the Senate and the House of Representatives – fell short of expectations. Indeed, for the second election running pollsters failed to predict the tight nature of the race. Still, as vast numbers of absentee ballots were counted and key states fell to Biden, investors looked to the elections taking place for the Senate and the House to gauge the potential congressional gridlock ahead.

Figure 2: While Joe Biden has pulled ahead to command a majority of the electoral college votes required to take the White House… Figure 3: … the Democrats were less successful in the Congressional selections with a net loss of seats in the House and a failure to gain a clear overall majority in the Senate
Source: Associated Press, EQ Investors Source: Associated Press, EQ Investors

 

With President-elect Biden now not likely to enjoy a Democratically-controlled Congress, commentators have questioned the market’s expectations for fresh economic stimulus to revive the pandemic stricken-US economy. Prior to the election Joe Biden had outlined plans for billions of dollars of stimulus funded through tax rises for the wealthy and large businesses. As we have covered in previous editions, some of these spending commitments spanned the green energy transition and public infrastructure. But with a potential roadblock in the Senate, it’s possible that Republican Senators can block (or at least slow or water-down) the president’s plans. That said, should the Republicans fail to hold a majority in the Senate the Democrats will have a path to passing legislation. This would include a scenario of no overall majority in the Senate as it falls to the Vice President of the United States to cast the deciding vote in any draws.

Figure 4: While yields ground higher over the preceding week to the election on rising expectations of a Biden win, uncertainty from the exit polls that showed a close race sink the chance of significantly higher government spending
Source: Bloomberg, EQ Investors

Prior to the election, there were intense negotiations between the US Treasury Secretary Steven Mnuchin and the House Speaker Nancy Pelosi to back a $2 trillion stimulus package. But with the Democrats now coming out on top following the election, it’s currently unclear whether these talks will resume before Joe Biden’s inauguration. However, nothing should be discounted from the US political sphere with the race still not officially called for either candidate and a spat of lawsuits being filed by each side. No doubt there will be more noise from both sides in the coming days and weeks.

STAT OF THE WEEK: 94 – the number of people out of 43,538 participants in Pfizer’s vaccine trial who went on to test positive for Covid-19, suggesting the treatment is 90% effective.

DATA CORRECT AS AT: 06/11/2020

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    Tertius Bonnin

    Tertius is an Investment Analyst on our research team. He focuses on investment ideas within US, global and thematic equities, and sits on our fund selection committee.

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