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The US presidential election day is coming this November 3rd. And the majority of investors believe the outcome will have a large effect on the stock market.
No one knows for sure how it will all play out. But the heightened political concern is causing a lot of stress. Financial advisors are encouraging clients to relax and separate their emotions from their investments.
During the 2016 election, many expected a market crash if Trump was elected. When it was announced Trump had won the election, futures fell 5% during late-night trading. However, the plunge rapidly reversed the next day.
So, what can an investor expect for the 2020 election? Let’s go over what a win for Trump or Biden could mean for the stock market.
A Biden Win
It’s anticipated that a Biden win and Democratic control of congress will cause a market sell-off. Mainly due to tax policies and climate policies that will put a damper on corporate earnings. How big of a sell-off will it be? That’s anyone’s guess.
The market will likely not react much if Biden wins and the Democrats do not sweep congress. With the control split between Democrats and Republicans, not a whole lot will get done. It will be harder for Biden to pass progressive policies that may be damaging to the economy.
A Trump Win
If President Trump is reelected and the house remains split, the market will likely go up, but probably not by much.
The president’s focus on the stock market and implementing tax breaks have bolstered market returns in the past. If Republicans sweep congress along with a Trump win, it’ll possibly create a bullish scenario for the market.
Delayed or Disputed Election Results
The market does not like it when things are highly unpredictable. The biggest concern with this election is the growing controversy of fraud.
President Trump has largely spoken out against mail-in voting and his distrust of the United States Postal Service. He has also implied that he may not peacefully leave office if Biden wins.
The results may not be clear come election night and could end up getting delayed. The market will likely be quite volatile during this time.
Final Election Thoughts
There’s not much of a relationship between who is in office and market performance.
For long-term investors, its business as usual. You should mostly ignore the horse race and stick to your investment plan. For traders, there’s likely to be many volatile market swings that provide great opportunities.
Another catalyst with the election is civil unrest. Whoever wins, one can expect there to be more rioting. Riots haven’t really affected the market very much in the past. But if it gets bad enough, it could cause a deepened sell-off.
September 2020 US Market Performance
Equities took a step back in September and gold closed slightly lower. Tech performed the worst last month with the Nasdaq losing -7.37%.
September 2020 Market News Recap
Stimulus talks between white house negotiators continue but aren’t getting anywhere. The Republicans and Democrats are still at an impasse on the next coronavirus stimulus bill. If passed, the bill will likely reinstate the $600 unemployment benefit and send another round of $1,200 checks.
Disney is laying off 28,000 theme park workers. The company is feeling the sting from lockdowns and is letting some employees go. Disney mentioned California’s unwillingness to lift restrictions played a role in the decision.
Oil giant BP announced its shift away from oil to renewables. The company is investing in wind, solar, hydrogen, and other green energy alternatives. BP mentioned that oil demand might have peaked last year.
Tesla gets left out of the S&P 500. Earlier in September, Tesla was passed over for the addition in the S&P 500. It turns out that meeting the criteria alone is not enough to gain acceptance. Instead, Etsy, Teradyne, and Catalent were chosen. The stock price initially took a hit from the news.
EV company Nikola makes a deal with GM, but fraud claims arise. Nikola founder Trevor Milton resigned as executive chairman following fraud investigations. The $2b deal with GM involves the production of Nikolas electric pickup truck. Currently, the deal is on hold.
Fed chairman Jerome Powell pledges aid for as long as it takes. The Federal Reserve has made it clear they have no intention of slowing down support for the market. Earlier this month, Powell stated, “We remain committed to using our full range of tools to support the economy for as long as is needed.”
Elon Musk says he won’t take a coronavirus vaccine. The Tesla CEO and SpaceX founder Elon Musk claimed he will not be taking any covid vaccine, and neither will his family. The race for a vaccine continues, and Musk’s stance will likely cause even more people to skip it. The next question is if it will be made mandatory.
JPMorgan Chase pays $920 million spoofing fine. The bank admitted to misconduct and manipulation of precious metals and treasury markets. The “spoofing” came from traders entering large orders and promptly canceling them. This action altered the perceived supply and demand.
California is banning gasoline-powered cars. The state plans to ban all sales of new gas-powered cars beginning in 2035. Governor Gavin Newsom believes it will help combat global warming and accelerate the state’s plan to lower emissions.
No share buybacks for banks and capped dividends. The Federal Reserve announced restrictions on bank dividends and buybacks for another three months. This comes as a result of the covid downturn. The Fed believes banks need to continue to save their capital.
Market Outlook for October 2020
Expect rising volatility throughout the month as we move closer to the presidential election. October is usually a volatile month as it is. Now throw in a wild presidential race mixed with a pandemic, and you’ll get a pretty turbulent market.
Remember, the market absolutely hates uncertainty. With that in mind, October is likely to intensify whipsaw moves for stocks.
Big banks will be reporting earnings mid-October. This isn’t good news for investors. The financial sector has been struggling this year, and Q3 earnings could be bad. Abysmal bank earnings could set a dark tone for other upcoming company earnings.
A vaccine and stimulus bill will be in the spotlight along with election news. It’s very doubtful a stimulus bill will be passed before the election. No stimulus will equate to more downside.
The market wants a vaccine and is pricing one in before the election. If no substantial progress is made, it could prove bearish.
Overall, October is looking like a spooky month for investors. Not only from fear that stocks will sell-off. But mainly due to the multiple upcoming headwinds.
We are at an alarming time of increased uncertainty.