US Elections: too close to call
As some had expected, the results of the US presidential election and the Senate races are not yet known. The high participation rate and a huge participation via mail ballots explain this situation. At the time of writing, the latest tallies represent a ‘too close to call’ situation. The race to the 270 electoral votes is still ongoing and much closer than many people had expected, especially after Donald Trump kept hold of Florida. Due to the small differences, uncertainty remains high, as key swing states – mainly Pennsylvania with 20 electoral votes – have not yet finalized counting yet. Consequently, both Biden and Trump may still be able to reach the 270 mark necessary to win the US presidential election. In the meantime, Trump already claimed victory, suggesting the election has been fraud-marred and that he will go to the Supreme Court.
With regard to the Senate: Republicans are leading versus Democrats but counts are not yet complete enough in some states to make a definitive call. Finally, regarding the House of Representatives, based on preliminary results, Democrats are retaining their majority in the House. This also means that the much-mentioned ‘blue wave’ – where Joe Biden would win the White House and the Democrats would also take control of the US Congress – is looking less likely.
What's next?
In recent political history, this is not the first time that we do not know the winner the day after the election. In 2000, we waited more than one month before Al Gore conceded his defeat to George Bush. At that time, the result was tight: Bush won 246 electoral votes and Gore 250. The state of Florida, with 25 electoral votes, was decisive. But, here again, the result was so close that the results were contested, a recount was required and an outcome was finally reached with a ruling by the US Supreme Court on 12 December. Consequently, if results in this election become too close to call, we could wait until 8 December – the official date to solve any dispute – to know the 46th US President.
Market reaction
Asian markets are slightly up, while US futures have been volatile, and have fallen since President Trump raised the prospect of a disputed outcome. European markets have opened slightly lower. In other asset classes, some significant reactions occur, with currencies showing quite some volatility, oil prices rising and US 10-year bond yields dropping. But as long as there is no clear winner, markets most likely will remain nervous.
In 2000, the uncertainty regarding the US presidential election lasted more than one month, triggering a period of volatility. During that time, the US equity market dropped by 8% before recovering some of its lost ground. That period was different, as we were experiencing the end of the dot-com bubble. This time, economic indicators and any news regarding the evolution of the pandemic or progress on a vaccine could also have an impact on markets in the coming days and weeks.
Once there is more clarity on the outcome of the presidential election, we will publish an additional market comment regarding possible consequences of the elections result.
Olivier Raingeard
Global Head Equities