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Markets experience wild swings as voting results start to be counted
Thursday 05 Nov 2020 Author: Mark Gardner

Stock markets have reacted positively to the US presidential election race despite it becoming clear it could take a matter of days before the result is known.

The biggest fear for investors is a contested outcome, with Republican candidate Donald Trump claiming electoral fraud and threatening to go to the Supreme Court to stop the counting of votes.

Both Trump and Democrat candidate Joe Biden have declared victory before the outcome is revealed.

But one thing the market seems clear on is that there’ll be a mixed Congress again, with the Democrats looking likely to hold onto the House of Representatives and the Republicans the Senate.

The certainty of this alone saw markets rally on 4 November, with the FTSE 100 swinging from the red at the start of the day to record a gain of over 1%, with France’s CAC 40 and Germany’s DAX 30 likewise gaining over 1%, though traders cautioned that dealing volumes were low – something that could lead to more volatility ahead.

All three major indices on Wall Street also opened strongly as the S&P 500 traded 1.2% higher, while the Dow Jones advanced 0.4% and the tech-heavy Nasdaq soared 2.3%.

A gridlock in Congress like the last four years will benefit technology stocks in particular, as it means even if Biden wins, it will be a lot more challenging for him to push through the tax reforms and changes to antitrust law that he’s promised in his campaign, things that would all negatively affect big tech.

Clean energy stocks on the other hand recorded big falls, as a gridlocked Congress also means Biden is far less likely to be able to push through his $2 trillion infrastructure and clean energy spending plan should he become president.

‘The two main equity sectors impacted by the election outcome are technology and energy,’ says Peter Garnry, head of equity strategy at Saxo Bank. ‘A Trump victory would most likely be bad for green energy stocks although the current price action in Europe does not suggest a big divergence between oil and gas and green energy stocks.

‘‘Status quo’ or a weak Biden presidency is on the margin positive for US technology stocks as it means there is no path to change the GILTI tax rate which is the one that is applied to foreign income derived from intangible assets,’ he adds.

Cyclical stocks exposed to the US such as industrials traded lower with concerns over what a gridlocked Congress would do for the economy and the reduced likelihood of very large fiscal stimulus, with the US dollar also trading higher on lower fiscal stimulus expectations, while US government bonds got a boost as investors used them as a hedge against a contested outcome.

Gold did not follow suit thanks to the rise in the dollar, with demand for gold tending to decrease when the dollar rises as it becomes more expensive in other currencies.

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