With only a few hours until Election Day in the US, media coverage is at a frenzy, with many calling it the most important election of our lifetime.  With Covid-19 still running rampant across the world, in particular the US and Europe, the Election has everyone asking what it will mean for share markets.

As the hours count down many in the US believe Pennsylvania may be the deciding swing state for a number of reasons.  Firstly, the polling is close and Pennsylvania is not a large early voting state, so many votes are yet to be cast.  Additionally, the mail in voting system is more complicated so more mail in votes are likely to be invalidated, which is likely to hurt Biden, who currently leads the polls, much more than Trump.

Either way, Trump or Biden, what are markets likely to do?  Traditionally, US Elections have not had a material impact on markets.  This time around we believe corporate America is likely to be happier with a Biden win, as he is seen as a more stable outcome for corporate America.  Trump’s promise of bringing jobs back to America in the mining and manufacturing sectors has not come to pass, with his tariffs on China causing retaliation, which has ultimately hurt American families.  Biden however, will be a higher taxing President, which is negative for corporate earnings.  If Biden wins the White House, but does not control the Senate, which is a much tighter race than the White House, then ultimately markets will not be concerned as the Senate will provide a balance of checks and measures.  Where markets may be concerned is if Biden wins the White House and the Senate and then looks to remove the Filibuster rules (which has been talked about by Democrats) then that could cause markets to be concerned.

Another issue that is potentially a trigger to change market sentiment is a significant escalation in violence.  Typically markets are unconcerned with civil unrest which is seen as short term in nature and unlikely to impact corporate earnings, however if there was a belief or fear of the US descending into a Civil War, this would be a whole different outcome.  It would likely set in place a fear driven fall in markets that could result in a significant and rapid decline as other tensions such as Covid and China also weigh on markets.  It is not unusual that gun sales have escalated in the US in the lead up to the Election (this often happens with concerns about changes to gun ownership rules), however what is unusual is the significant number of first time gun owners.  Ammunition in many stores has sold out as Americans bunker down.  The number of Americans that believe the US will see significant violence in the aftermath of the election has increased from 50% in 2016 to 75% in 2020.  The risk of violence will be heightened where the election result is more controversial, such as Trump narrowly winning the Electoral Vote, but significantly losing the popular vote, or Biden narrowly winning as mail in votes are counted after the Election with Trump and the Republicans then disputing the result and taking it to the Supreme Court.

I think it is safe to say that humanity, decency and equality loses with another Trump victory, regardless of short term market gyrations.

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