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Buckle up and expect torrid time post US Election

4 November 2020

Investors have been told to told buckle up and expect a ‘torrid time’ immediately post the US Election as the potential for an inconclusive result leads to market volatility.

While President Trump has outperformed poll predictions, the final outcome of the election remains on knife edge with key state votes yet to be counted.

Experts warn that the final result of the closely-fought battle may not be known for days yet and the legal wrangles that could potentially follow could last weeks.

Richard Berry, founder of Good Money Guide, said: “If there’s one clear loser from America’s headlong rush towards electoral deadlock, it’s market stability.

“As America’s political class lawyers up, investors need to buckle up for a period of intense volatility that could last days or even weeks.

“We should expect a torrid time on the markets… a nightmare all too reminiscent of the Bush-Gore paralysis of two decades ago.”

Jeremy Lawson, chief economist, Aberdeen Standard Investments, echoed the sentiment, warning that a Democrat win, the “much hyped blue wave” that markets had been anticipating, had failed to materialise.

Lawson said: “As a result we are seeing trades fall away that were heavily skewed to this being a very clear Democrat win and markets drifting looking for stronger signals to latch on to.

“Investors are in for a long wait for this to be resolved. The outcome of the presidential race is potentially up in the air beyond this week and the Senate’s make-up unlikely to be finalised until January.”

According to Aberdeen Standard Investments’ investment director James Athey, the lack of clarity will refocus investors’ minds on the Federal Reserve’s next steps.

Athey commented: “A result this close puts more pressure on the Fed. A divided Congress, let alone a disputed result, are bad omens for the prospects of a fresh stimulus package. The lack of fiscal stimulus will sooner or later require the Fed to react, and that’s worrying.

“The tools the Fed is using have long produced unhealthy distortions in asset prices and markets are becoming ever more programmed to know that the central bank will step in at the sight of trouble. That kind of dependency is not healthy.”

However, Darius McDermott, managing director, FundCalibre (left), suggested that while there will be short-term uncertainty in the markets, the result of the election will not have a lasting impact over the longer-term.

According to McDermott, the ongoing Covid-19 pandemic and the resulting lockdowns in Europe will have a big impact on the direction of markets going forward.

McDermott explains: “The US is currently battling a recession and whether fiscal stimulus comes from a Democrat win or we get more monetary stimulus after a Republican win, the fact remains we will get stimulus. And the stock market will react to that, not a name.

“We also mustn’t forget that while the US will dominate headlines for a while, the election is not the only game in town and it’s not operating in a bubble – social or otherwise: COVID-19 will still have a huge impact and investors will continue to look for yield in an income-starved landscape.

“So while emerging markets and Asia may have gone to bed worrying more about trade wars than yesterday, actually their economies and stock markets have rebounded faster, while the US remains divided and Europe has entered a second lockdown.”

Looking beyond the election, Ben Kumar, senior investment strategist, Seven Investment Management, believes the outlook is bright.

Kumar added: “We remain positive about the outlook. The global economy is in better shape than headlines would have you believe – with Asia in particular looking very resilient. The waves of monetary and fiscal support are continuing, and a V-shaped recovery remains our base case.

“We keep our overweight to equities and other growth assets, looking to benefit from the next stage in the economic cycle.”

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