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How will US markets fare after Trump-Biden election?

Published: Updated:

Investors and financial advisers have faced one of the most turbulent years in modern history as the coronavirus pandemic has forced the global economy into its greatest recession in nearly a century while countries halt economic activity and implement nationwide lockdowns to combat the spread of the deadly virus.

In the United States, the coronavirus, coupled with this year’s presidential elections, has further compounded market uncertainty.

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US President Donald Trump has repeatedly said that voters’ retirement funds and investments would disappear if his Democratic rival Joe Biden wins on Election Tuesday.

Biden touts his time as former President Barack Obama’s vice president, saying the duo helped the US navigate its way out the 2008 Great Recession.

Biden says it is time for corporate America to pay more taxes and has suggested that anyone making less than $400,000 annually will not face a tax hike. Trump has implemented tax cuts across the board.

Market analysts and financial advisers who spoke to Al Arabiya English had one standard message: Any impact on a potential Trump or Biden win would only be short-term.

Read more: When can we expect US presidential election results? Political analysts weigh in

“What will happen in the next two months will impact day traders but won’t hit too big on long-term investors,” a financial advisor working in the industry since 2012 said.

US President Donald Trump speaks during a campaign event in West Salem, Wisconsin, Oct. 27, 2020. (Reuters)
US President Donald Trump speaks during a campaign event in West Salem, Wisconsin, Oct. 27, 2020. (Reuters)

The advisor is based in Virginia, and like the other professionals who spoke to Al Arabiya English, asked to remain unnamed over the fear that their opinion could impact their business.

For the first time since the coronavirus heavily hit the US in March, the Dow, S&P 500, and Nasdaq closed out October with the first back-to-back monthly losses.

“Last week, people were pricing in a Biden victory. People are assuming a Biden win, so they would sell off their shares and get out before,” the Virginia-based advisor said.

If Trump is reelected for a second four-year term, analysts said the 6 percent downturn seen last week in the stock market would likely turn back positive.

“Either way, it is dependent on the efficiency of the speed of the voting results,” an adviser said.

The uncertainty of no certain win

Nevertheless, reports suggesting that the election could be determined in US courts have also factored into market expectations.

If there is an election result that drags on, all three advisors believe there will be a steeper dip in US markets.

“So much of what happened in March was due to absolute uncertainty. We had never seen anything like that before. If we have an election result that drags on, it could get to a similar level,” the Virginia-based adviser said.

Read more: US economy picks up pace, records 33.1 percent growth in third quarter

Last week was the release of third quarter (Q3) GDP numbers for the US, which showed the highest increases from one quarter to another.

Although it was expected, according to experts, it increased hope among investors.

“What we saw in terms of pricing in a Biden win, had the Q3 numbers not been as strong as they were, we would have seen a bigger dip,” the Virginia-based adviser said.

Democratic presidential candidate Joe Biden speaks in a hanger at General Mitchell International Airport, Oct. 30, 2020, in Milwaukee. (AP)
Democratic presidential candidate Joe Biden speaks in a hanger at General Mitchell International Airport, Oct. 30, 2020, in Milwaukee. (AP)

One of the predicted outcomes, even from financial experts, is a split electorate. This means the White House would be won by one party, while both Houses would be split.

“If everything goes Blue (Democrats win Congress, Senate and the White House), and tax hikes on wealthier individuals and so forth are implemented relatively quickly, we could be in for a longer stock market recession,” the Virginia-based adviser said.

Oil markets

As the main focus will be on the election outcome, the coronavirus continues to rip through the United States at unprecedented levels. New cases reached 100,000 this week for the first time.

Opposing arguments from Trump and Biden on how to best deal with the response has been one of the most contentious issues.

Trump has been a proponent of reopening schools and the economy.

On the other hand, Biden has suggested he would “listen to the scientists” and implement a nationwide lockdown if recommended.

“If there is a lockdown, the oil demand will be crushed. Even if the oil is supposed to go up in the case of a Biden win … that would be washed out due to a hard stop,” a Washington-based investor that deals with sovereign debt told Al Arabiya English.

Oil prices have been hit hard this year by the coronavirus pandemic, tumbling dramatically and, in the case of US WTI oil, taking an unprecedented turn into negative pricing with producers paying buyers to take excess crude off their hands.

Asked if more certainty on when the pandemic could subside would help, the investor said it wouldn’t make a difference. “The oil market is such a razor-thin balance that we couldn’t handle such a thing.”

The investor added: “Oil importers would be helped, but no one will care that their import bill went down when the whole world comes to a standstill.”

Read more: How Trump and Biden have different economic plans for the US