Market Overview

6 November 2020

Can Markets Just Bet on the Divided U.S. Government?

The U.S. S&P 500 broad market index soared above a 3500 landmark amidst  the election uncertainty. At least one possible secret of such a poker-faced behaviour of the stock market could be Wall Street's bet on a probable Republican held Senate that may just block any corporate tax moves or other hasty election pledges by a Democratic Joe Biden administration. If, of course, the state courts or the U.S. Supreme Court will recognise Biden as a legal winner of the election, although it might be fitting to remember that there is many a slip ’twixt the cup and the lip.

However, even if the Democratic party will celebrate its victory in the battle for the presidential seat, the highly expected "blue wave" is unlikely to cover the still bipartisan Congress. The Democrats will almost certainly keep the lower House, but they are unlikely to win back the necessary 4 of the 35 new elected Senate seats, as just a third of the Senate is at stake in general elections. According to officially distributed preliminary results, 48 Democrats and 48 Republicans are in the Senate now, with four places still legally vacant, but Democrats intercepted for sure only one of the remaining seats for now. It is clear that a small part of votes for Congressmen and Senators are still being counted in some states too, yet the retaking of the Senate would be a really difficult task.

It may be potentially harder for a hypothetically Democratic administration to rein in big tech and other economic sectors, that would mean, first of all, a big obstacle against tightening any regulation or raising taxes on corporate America. The sitting President Donald Trump lowered corporate taxes from 35% to 21% after he managed to get this legislation through Congress at the very end of 2017 with substantial help from some strong compromises, but Republicans will most likely not agree to raise taxes back and to destroy the only evident economic promises they kept. But this means that investors' biggest fears before a possible change in the White House administration are likely to be groundless. However, most investors believe that the stimulus package would be adopted anyway.

"Markets prefer divided government," said Brian Levitt, Invesco global market strategist. "Incessant hand wringing over the key issues and concerns over the prospects of higher taxes, a Green New Deal, changes to the Affordable Care Act and much more appears to have been for naught." The alleged $2 trln Green Deal could prompt renewable energy or some infrastructure assets, but it could suppress the oil industry and some other traditional manufacturers, especially if any new taxes on carbon emissions are introduced, but all these proposals may be blocked in the case of a Republican Senate.

However, the market positive sentiment may be rather careful and volatility could still increase, with a possible partial sale of shares on the stock market to resume at any moment while the legal proceedings for the White House seat are underway. From this perspective, the fastening "political" growth of Gold prices may be easily understood, as the yellow metal futures keep the height of around $1950 per troy ounce since Thursday's eve. Nevertheless, gold may only be called a "safe haven" asset under some conditions or limitations, since precious metals are often an essential part of broad stock investment portfolios, so that the quotes of Gold spot or Gold futures also depend, to some extent, on the strength or weakness of composite stock indices. Financial risks on Wall Street may be perceived as not being as big as expected before if the "blue wave" political risks fade. But these risks of the whole-scaled political crisis should perhaps not be diminished if the election lawsuits are to transform into long-lasting cases or violent street riots.

Last night, when darkness fell, the Pennsylvania Convention Centre in Philadelphia was crowded with Trump supporters and citizens were separated from the police officers by a fence. These people are outraged by the abnormal and probably illegal situation when representatives of the Republican party were deprived of access to check the election vote calculation process, and it was just at the moment when Trump's half a million votes advantage started to disappear when mail-in ballots began to be opened one by one.

97% of the ballots are already counted in that state, and the score is still 18,000 votes in favour of Trump, which would allegedly give him 20 Electors, but the U.S. Postal Service (USPS) said about 1,700 more ballots had been identified in Pennsylvania at processing facilities during two sweeps on Thursday and were being delivered to election officials. In a court filing early on Friday, USPS said that 1,076 ballots had been found at the Philadelphia Processing and Distribution Centre, about 300 were found at the Pittsburgh processing centre, 266 at a Lehigh Valley facility and others found at other Pennsylvania processing centres. All ballots must be received by Friday evening in Pennsylvania in order to be counted, so Pennsylvania is one of the states that remains undecided.

In Nevada, the vote difference is only 8,000 now, and Nevada authorities just said the state will accept mail-in ballots postmarked by November 3 until Tuesday, November 10, as the rest of the nation eagerly awaits a vote count from the state that could decide the fate of the presidency. Meanwhile, a former Nevada Attorney General Adam Laxalt decried changes to his state’s mail-in voting laws and subsequent decisions from a local court that made it difficult for allies of President Trump to monitor ballot-counting. On Fox News Channel’s “Tucker Carlson Tonight” Adam Laxalt said: "We are still not allowed to watch the signature-matching. We are not allowed to challenge any of those signatures... As America knows, those that stayed up like me all night — they dumped these at 3 a.m. They counted through the middle of the night... They’re counting all day... And we’re still having to wait until tomorrow. And we are still right at this second, not in that door... just for your viewers, that has to be quite startling that almost 400,000 votes were cast last night, and there was no observation, no transparency. And you know, we’re supposed to just trust but not be able to verify."

Laxalt added that Trump would have won Nevada over former Vice President Joe Biden “convincingly", but "again, we don’t know how bad voters there are in this giant stack... we also know there are likely to be dead voters... people that have moved out of Las Vegas but found their ballots were still cast... it’s just astounding when you watch the news commentary last night [and] they keep acting [like if] these systems are fool proof, and there’s no way that any improper voter can get through. And it is just simply not true.”

There was also convincing video evidence of how in Detroit, Michigan state, absentee ballot counting created a kind of chaos as the election committee staff just blocked the glass windows of the room with big pieces of carton or ply-wood to hide the whole process from the demanding crowd of outer observers. Trump was holding a strong lead in the state during early counting Tuesday evening, only for it to evaporate as mailed-in ballots were counted, and restricting transparency already became a cause for the Republican team to file a lawsuit. The same claims were made to the courts of Pennsylvania, Georgia and Wisconsin, and Trump's lawyers just need to recount votes.

Trump said that Republicans will challenge the results in all the so-called "key" states where the victory of the democratic candidate Joe Biden was declared. The incumbent U.S. President said that he, and not Biden, won the presidential race if all legitimate votes are counted: "I easily WIN the Presidency of the United States with LEGAL VOTES CAST. The OBSERVERS were not allowed, in any way, shape, or form, to do their job and therefore, votes accepted during this period must be determined to be ILLEGAL VOTES. U.S. Supreme Court should decide!" Joe Biden tweeted: "Let me be clear: I campaigned as a proud Democrat, but I will govern as an American president... I ask people to stay calm. The process is working. The count is being completed... Democracy is sometimes messy, so sometimes it requires a little patience. But that patience has been rewarded now for more than 240 years with a system of governance that has been the envy of the world. Donald Trump is going to court to stop votes from being counted. We have assembled the largest election protection effort in history to fight back and need your help". His team created a donation internet portal "to make sure every vote is counted". "Keep the faith, folks," he added. So, the saga is still on stage, and the markets could be suspended for a while, up in the air, or maybe rolling downhill at some moment, both options are condition-based.


Analysis and opinions provided herein are intended solely for informational and educational purposes and don't represent a recommendation or investment advice by TeleTrade.

Lysakov Sergey
Market Focus

Material posted here is solely for information purposes and reliance on this may lead to losses. Past performances are not a reliable indicator of future results. Please read our full disclaimer.

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