Global investors were on edge as Americans headed to the polls on Tuesday, drawing to a close a dramatic US election cycle that has moved bonds, stocks and other assets in recent months and could further sway markets as results become clearer.
One of the most unusual elections in modern US history could yield starkly different implications for tax and trade policy as well as for US institutions depending on whether Republican Donald Trump or Democrat Kamala Harris prevails.
The results could rattle assets around the world and lead to broad financial fallout, including on the outlook for US debt, the strength of the dollar and a host of industries that make up the backbone of Corporate America.
With polls showing a dead heat between the former president and the current vice president and control of the US Congress also at stake, investors are wary of any unclear or contested result that could fuel volatility stemming from any lasting uncertainty about the political backdrop.
As votes start to be reported on Tuesday evening, investors will train their attention on tallies from a handful of bellwether counties across the country that could indicate early clues about the winner. But many of the battleground states that will decide the race may not have meaningful results until at least late at night.
“This is the most significant election that I have seen in my career,” said Mike Mullaney, director of global markets research at Boston Partners, who has worked in investment management for over 40 years.
“It’s going to be very bifurcated, with certain things happening under Trump winning, and certain things happening under Harris winning,” Mullaney said.
The focus on the election follows a stocks rally that has taken the S&P 500 to record highs in 2024 with a roughly 20 percent year-to-date run, driven by a robust economy, strong corporate profits and interest rate cuts from the Federal Reserve.
The S&P 500 was up 0.8 percent on Tuesday morning, with several assets whose recent price swings have been linked to Trump’s standing in polls and betting markets gaining ground.
Several measures of trader demand for protection against outsized overnight price swings in the currency market surged to their highest since the November 2016 election.
Bets swaying markets
Bets on the election outcome have had a hand in swaying markets. Traders have pointed to Trump’s gains in polls and betting markets as a factor driving assets that could be influenced by his pledges to raise tariffs, cut taxes and decrease regulations.
Those so-called Trump trades include tumbles in the Mexican peso , which could be hit by tariffs, wild swings in the shares of Trump Media and Technology Group and rallies in industries that could benefit from looser regulation, such as regional banks and bitcoin.
Yields on Treasuries – which move inversely to bond prices – have also risen, as investors price in potentially higher inflation, another projected consequence of Trump’s policies.
Trump Media shares were up around 15 percent on Tuesday morning, while bitcoin was up some four percent as betting markets leaned more heavily in favour of Trump.
“The market is getting pulled and pushed in different directions here as investors try to price in a lot of unknowns as it relates to the election,” said Matt Miskin, co-chief investment strategist at John Hancock Investment Management. “In the next week or so we will get certainty; either it reinforces this positioning or there is going to be a shakeout.”
A Harris presidency, meanwhile, is expected to result in tougher regulations, more support for clean energy and potentially higher taxes on companies and wealthier individuals.
‘Blue wave’ seen unlikely
Both Trump and Harris would likely need their respective parties to win control of Congress in order to alter tax rates. A so-called “Blue Wave,” where Harris prevails and Democrats gain control of both the House of Representatives and the Senate, is a result that most investors deem as unlikely, however.
“If Harris does win … she is now highly likely to face a Republican-controlled Senate, which would leave most of her fiscal plans dead in the water,” analysts at Capital Economics said in a note on Friday.
Historic data shows that stocks tend to perform well at the end of election years regardless of which party wins, as investors embrace clarity about the political situation.
This year, however, some investors are concerned that the result will be too close to call, increasing uncertainty for markets. Another worry is that the election will be contested, in a move similar to Trump’s efforts to overturn his loss to President Joe Biden in 2020.
While recent precedents for challenged elections are few, investors are mindful of 2000, when the race between George W. Bush and Al Gore was undecided for more than a month due to a vote recount in Florida. During that period, the S&P 500 slumped five percent, when sentiment was also weighed down by unease about technology shares and the broader economy.
Though the S&P 500 is only about two percent down from its record high, stocks have grown more turbulent in the past week following a mixed earnings reports from megacap tech companies and increased anxiety over the election. The Cboe Volatility Index, known as Wall Street’s fear gauge, has risen to over 20, after falling below 15 in late September.
An unclear election “is a big problem because that is what we had in 2000,” said Matt Maley, chief market strategist at Miller Tabak. “What is it going to do this time when you have so much going on in the geopolitical arena?”
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