As we enter our second lockdown, despite assurances that this wouldn’t happen, I am reminded of the famous quote from Yogi Berra “It’s déjà vu all over again”. Although Yogi was a baseball player with the New York Yankees, in his spare time he was something of an amateur philosopher, he is also attributed with saying “It’s tough to make predictions, especially about the future!” He could have been thinking about the US election with that one!
The most bitterly contested US election in living memory is still undecided but a result is getting closer. Biden needs 17 Electoral College Votes (ECV) and leads in Arizona (11 ECV) and Nevada (6 electoral votes) so is close to winning. However, Arizona votes are shifting towards Trump and Nevada is a tiny margin. Georgia, Pennsylvania and North Carolina remain undecided and Trump leads at the moment but here the late votes are swinging towards Biden. In North Carolina Trump's lead looks large enough to hold on but in Georgia (16 ECV) and Pennsylvania (20ECV) the Biden vote may overtake Trump. We may get the vote in Georgia later today but Pennsylvania can go into Friday. Biden leads the popular vote of course but so did Hilary Clinton in 2016.
If Trump loses, he is likely to mount legal challenges in any of these states that go against him. He has made tweets about the election being stolen and claiming victory in states that have not been decided. Any Legal challenges could take several weeks to resolve.
Given this uncertainty, markets have responded very positively. The losses in US equity markets last week have reversed with the tech sector particularly strong. The failure of the Democrats to take control of the Senate may be a factor in this. It will probably mean Biden's tax plans will be diluted and regulatory threat to the large tech companies may be reduced. The Tech heavy Nasdaq was up 4% yesterday and futures are pointing higher this morning. With the Senate still in Republican hands, borrowing may not rise as much as feared and Treasuries have rallied reversing much of the pre-election losses.
Even by tomorrow morning we may not have clarity on the vote and legal challenges will take longer. In the meantime, a new stimulus package needs to be passed and the existing houses of congress continue for the rest of the year with Donald Trump remaining in office until 20th January. Some things remain unchanged whoever gets into power, including the fact that both sides want more fiscal stimulus and they both need growth or inflation to help the economy and to reduce the national debt long-term. Interest rates will remain low for a long time. The pandemic will continue and a vaccine may be getting closer to being ready for widespread use. Fiscal and Monetary stimulus will continue for some time, which will continue to support financial markets.
In spite of the lockdown and whatever the outcome of the US election, it is business as usual for us at Clearwater. Adam and Kim will be working from home in accordance with government guidelines but I will be coming into the office each day to ensure there is someone here to answer any queries or concerns you may have throughout this period.
Kim is already writing to clients to either rearrange planned face to face planning meetings or to replace them with a Zoom or Teams call.
I will leave you with one more classic from Yogi Berra, “You should always go to other people’s funerals, otherwise they won’t come to yours!”
I look forward to seeing you all on the other side of lockdown but as always, if you have any questions about any finance related matter, please do not hesitate to contact me at any time.
With best regards,
Yours sincerely
Graham Ponting CFP Chartered MCSI
Managing Partner
