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U.S. Election Day Is Here – What to Expect from the Financial Markets?

Posted: Tuesday, November 3rd, 2020

Estimated Reading Time: 2 minutes

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The long-awaited U.S. Election Day finally arrived. By the time that voting begins today, over one hundred million Americans already expressed their opinion. As it turns out, 2020 is a record year in terms of voters’ turnout.

Polls suggest a tight race. However, with only several hours until the first local polls are out, state-wide polls give Biden as a winner. Yet, they did so in 2016, only for the world to watch how Trump won.

Could we have a similar outcome today? According to the polls ran by Trafalgar Group, Trump leads in key states. As a reminder, this is the same pollster that correctly predicted Trump’s victory in 2016.

U.S. Election Day

What Is at Stake on the Election Day?

Both Trump and Biden have fair chances to win. The battle for the so-called swing states (i.e., the states with the most electoral votes) is key.

Out of a total of 538 electoral votes, the candidate that wins a minimum of 270 wins the elections. Anything is possible today, including both candidates to claim victory in the case of a tight race. If that is the case, it will take several more days or even over a week until all the votes are counted.

However, financial markets have a way of reacting during the U.S. Election Day. Rarely the markets reacted one way, and then the outcome differed.

Therefore, financial markets participants expect a clear result today. What will it mean for the main financial assets?

Scenarios During the 2020 U.S. Election Day

Most forecasters predict a higher U.S. dollar in the case of a Trump victory. Equally important, though, is who wins the Congress.

If Trump wins and there is a Republican Senate, $1.5 trillion fiscal stimulus should hit the economy. Who wins? You guessed, the stock market.

On the other hand, if Biden wins and there is a narrow Democrat Senate, a $3.25 trillion stimulus package arrives, out of which $750 billion in infrastructure programs. Who wins? Again, the stock market.

How about the U.S. dollar? In the case Trump wins, the market expects a higher dollar to follow for at least two reasons. First, uncertainties regarding America’s foreign policy remain. Second, the smaller stimulus will drag on the U.S. dollar. Obviously, in the case of a “blue wave”, the market participants expect a lower U.S. dollar.

The 2020 U.S. Election Day also matters on how America deals with the pandemic moving forward. Trump signaled no lockdowns for the American economy, unlike what we have seen in Europe lately. If that is the case, the American economy will recover much faster. It already recovered a significant part of the decline, as seen by last week’s GDP or yesterday’s impressive ISM Non-Manufacturing data.

Biden, on the other hand, preferred a prudent approach to the pandemic-related issues. If anything, he leans towards a scientific experts’ opinion before deciding on the next approach to the pandemic.

Finally, the world wants back America it once knew – the leader of the free world, an economic, military, and political ally to the developed nations. Yet, what matters today is that the voice of the American people is heard. Regardless of the outcome, it must be respected.

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