At this stage, there is no clear winner in the US presidential election despite incumbent Donald Trump declaring victory over Democratic rival Joe Biden, creating greater uncertainty in markets. Trump has performed far better than many had anticipated, with Biden unable to win an outright majority.
In a speech early this morning the incumbent called on the Supreme Court to stop the counting of votes calling it a “major fraud in our nation”.
Indeed, some commentators have compared it to the tightly contested 2000 race between George W Bush and Al Gore. While unlikely there could be a repeat of the controversial Florida recount of that year, Trump has repeatedly questioned the legitimacy of large-scale postal voting that has taken place as the coronavirus has kept people at home.
While the Biden campaign has rejected Trump’s declaration of victory, the Democratic challenger has come under pressure after failing to win as conclusively as the polls and betting markets had predicted before the election.
“It is important to point out that, at the time of writing, a Biden win is still not ‘off the cards’, although it seems highly probable that, even if Biden does win the presidency, it will be by a smaller margin than many had forecast,” said Richard Buxton, head of strategy – UK alpha at Jupiter Asset Management.
“In the longer term, regardless of the eventual outcome, one thing remains clear: isolationism remains a powerful force among the US electorate, and much of Trump’s 2016 agenda still resonates powerfully with voters in a deeply divided nation.”
While markets had risen ahead of the election suggesting a Democrat clean sweep, they have now started to give back some of the gains.
And while this rumbles on, market uncertainty that may last days or even weeks could take a toll on investor returns.
Adrian Lowcock, Willis Owen’s head of personal investing, said the quick result people had hoped for looks increasingly less likely.
"It’s the worst outcome for markets,” he said. “With futures jumping around as traders switch their trades to try and reflect the shifting sentiment towards the candidates.
“Investors may have to endure some vicious swings for the next few days if this drags on, and it has echoes of 2000 when the result of George W Bush versus Al Gore was too close to call.”
That election was decided by just 537 votes after a lengthy court hearing which took three weeks to be concluded. Markets plunged in the interim, the S&P 500 fell 8.09 per cent in less than a month and the FTSE 100 was down 4.9 per cent during the same period.
“Prepare for some volatility over the coming weeks,” said Lowcock. “But remember that investing is for the long term and the US courts will get a clear result in the end.”
Richard Carter, head of fixed income research at Quilter Cheviot, agreed, adding that the close result and questioning of democratic legitimacy will likely harm markets.
“In the short term, this is disappointing for markets and raises the prospect of several days or even weeks of uncertainty and possible legal challenges,” he said.
Investors would have hoped that a clear victory would ensure a large stimulus package which would boost the US economy.
“This now appears unlikely, at least in the short-term, so we would expect to see some volatility today as markets digest the situation,” Carter added. “The good news is that central banks will continue to provide large amount of supports through quantitative easing and low interest rates and this should reassure investors as we wait for news from Washington.”