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How Are Markets Reacting to the 2020 U.S. Election?

updated: November 12, 2020

Democratic candidate Joe Biden captured enough Electoral College votes to win the US election. uu. presidency (subject to recounts and court challenges), with the market now turning its attention to the implications of a divided government.

Reading: How will the 2020 election affect the stock market

Whether Biden leads a unified or divided government may not be known until early 2021, meanwhile, President Trump has yet to concede the election. the safe harbor date for states to certify election results is December 8, while members of the electoral college cast their votes on December 14. December 23 is the deadline for the president of the senate (the vice president) and designated officials to receive all state electoral votes on ballots, with congress responsible for counting the electoral votes and declaring a winner on January 6, 2021. the inauguration for the next administration takes place on January 20.

In this report, j.p. morgan global research examines the market implications of a biden presidency and divided government.

united states elections 2020: what we know so far

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So, despite criticism of flawed polling data and erratic movements in the betting markets on election night, this race is reasonably in line with historical precedent and recent polling. Biden prevailed, his margin was average (3% of the popular vote), and he shifted most of the expected swing states (Michigan, Wisconsin, Michigan and Pennsylvania and maybe Arizona). Georgia may also change, which few predicted.

The biggest electoral surprise comes in Congress, where the Democrats seem to have lost a fraction of their majority in the House and have yet to take the Senate, although the latter could still result in a 50/50 split after the second round elections. for two seats in the georgia senate on january 5. If Democrats prevail (Georgia last sent two Democrats to Washington in the early 2000s), then Vice President-elect Harris would cast the deciding vote in the event of a tie, effectively ensuring Democratic victory.

“yes, for January, it is clear that the us. the electorate has fired president trump but not the republican party, the historical importance is quite great: in the last 50 years, control of the white house has only changed once without the new president also controlling congress (reagan in 1980 ). And, by now, most investors are aware of how short-sighted Biden’s agenda becomes in terms of policy transformation in various sectors if Democrats lack control of Congress,” said John Norman, Chief Strategist for Fundamental of cross-assets in j.p. morgan.

A historically wide ideological gap between the major parties and an increasing frequency of close elections mean that transformative change, with the use of executive orders to dictate policy here to stay, is unlikely.

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“Executive orders can be used to cover a variety of policies, including energy reform, immigration, trade policy, and antitrust and regulatory policy,” added joyce chang, president of global research at j.p.

The first announcement by President-elect Joe Biden and his transition team on November 9 was the creation of a 13-member COVID-19 task force. this announcement coincided with pfizer’s announcement that the bntx 162 vaccine demonstrated greater than 90% efficacy in a phase 3 covid-19 vaccine trial.

Beyond news on a vaccine breakthrough, market attention will focus on whether a mini fiscal stimulus bill can be passed in the congressional session, coinciding with the extension of the funding bill from the government, which expires on December 11. .

“We now see a path towards the implementation of a major stimulus package by the end of the first quarter of 2021, particularly given the recent deterioration in the public health situation. such a stimulus deal would provide a significant boost to growth in the second quarter and beyond,” said mike feroli, director of u.s. economist at j.p. morgan.

A divided government could temper a more aggressive fiscal or regulatory agenda that might have materialized under a “blue wave” and bodes well for risk assets, added Matt Jozoff, co-head of fixed income research at J.P.

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