Presidential debate revives bad memories of hanging chads and sliding markets

With Joe Biden leading in the polls, President Trump seems determined to take to heart Dylan Thomas’ cry ‘Do not go gentle into that good night’ and his aggressive stance and apparent determination to challenge the election result – should he lose – will put financial markets on edge. The prospect of a contested result will stir bad memories of the November 2000 ballot when George W. Bush and Al Gore wrangled over a recount in Florida, argued over ‘hanging chads’ and ultimately had to go to the Supreme Court to settle the matter. By the time the dust had settled, the S&P 500 had lost 12% of its value.

Source: Refintiv data

Granted, the ballot was not the only issue for investors to ponder at the time, not least because the technology, media and telecoms (TMT) bubble had started to leak air. The bubble’s collapse (not forgetting the 09/11 terrorist attacks) became the defining theme of 2001 as the S&P 500 index lost more than a fifth of its value in the 12 months after the Bush-Gore vote.

Source: Refinitiv data

But the disputed result only served to heighten tension and stoke volatility. The VIX index rose from 24.9 on polling day, 7 November 2000, to 31.7 at its peak on 20 December and it had only just returned to the election-day level by the time President Bush was sworn in on 20 January.

As such, whatever else happens, investors can surely expect greater volatility as the fifty-ninth US Presidential election on 3 November draws near, especially as it will clearly be so hard fought.

Back in 2000, five states were decided by less than 1% of the vote, including that disputed Florida result which hung on just 0.0092% of the ballots cast, and they represented 55 of the Electoral College seats. Another eight states were decided by a margin of less than 5% and they controlled 84 seats.

It will be interesting to see if perceived haven assets such as gold and silver pick up a bid in the meantime, and whether equities wobble, particular as the candidates’ policy plans are made clear, picked apart and put back together again.

That said, investors might not want to get too hung up on policy details and leave that to the psephologists. After all, saying something to get into office is quite different from actually doing it if you get there.

On paper, Trump seems likely to favour more tax cuts and more deregulation, a recipe which investors in US equities have welcomed since his victory in 2016, despite all of their initial misgivings at the time of his defeat of Hillary Clinton and ongoing concerns over his trade policies and strained relations between Washington and Beijing.

By contrast, Biden seems likely to favour tax hikes and moves toward wealth distribution and tighter regulation. Oils, banks and technology are all stock market sectors which may be viewed with caution in this context, although aggressive spending on infrastructure and renewable energy mean there could be some interesting market hotspots.

All of that assumes the candidates can bend Congress to their will. The chances of a ‘red sweep’ of Presidency, House of Representatives and Senate seem slim, which could curtail President Trump’s room for manoeuvre, despite his early penchant for ruling by decree, and even the Democrats ability to achieve a ‘blue sweep’ cannot be taken for granted, with a supermajority of 60 in the Senate also seen as unlikely at the moment.

These articles are for information purposes only and are not a personal recommendation or advice.