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How the markets have reacted to the 2020 US election

After a tumultuous election which saw some unexpected results such as Georgia swinging in the Democrats’ favour, and protests at polling stations which involved chants of both “Count the votes!” and “Stop the count!” the dust has begun to settle, somewhat.

Many of President Trump’s series of lawsuits contesting results in states such as Wisconsin and Pennsylvania have now been thrown out of the courts, and he even hinted towards a concession by telling his government to cooperate with the transition to a Biden presidency.

Traditionally, 8th December is a “safe harbour” deadline where any controversy regarding election disputes are resolved, and so we can now, cautiously, expect said controversy to dwindle. With Joe Biden holding the most electoral votes, the Republicans likely holding the senate, the Democrats likely holding control of Congress, and the Republicans controlling the Supreme Court, we can expect the four branches of the government to be split between the two parties. 

So what does this mean for the markets? According to Marko Kolanovic of J.P. Morgan, “For US stocks, this is likely the best of both worlds. A potential Republican Senate majority should ensure that Trump’s pro-business policies stay largely intact, particularly the tax code and the direction the country has taken towards the center.” Biden will be unlikely to be able to enact any radical economic structuring due to constraints from the Republican senate, which may well result in confidence in lower volatility. 

In fact, the Dow Jones Industrial Average broke records by crossing 30,000 for the first time after Trump directed his aides to cooperate with Biden’s transition. This announcement helped to relieve some uncertainty relating to political risks over the winter. S&P 500 also saw gains of 1.6%, with the Nasdaq Composite rising 1.3% too. In fact, if the S&P 500 finishes this year on a high it would be the first time in history for the index to finish a year higher after falling 30% or more within that year. 

Of course, a slowdown is entirely possible, and caution is always advised when considering risk assets. As the transition from Trump to Biden continues to unfold, the markets will continue to develop their reaction.

Sources
https://www.jpmorgan.com/insights/research/market-reaction-2020-election
https://www.ft.com/content/433048a5-c489-4ddd-aebd-d56fb8f3edfc
https://www.wsj.com/articles/global-stock-markets-dow-update-11-24-2020-11606213552

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