Markets do not like uncertainty. Unfortunately, we may have several weeks of uncertainty if there’s no clear election winner tonight.
Markets are relatively ambivalent about who sits in the White House, instead focusing more on whether a government can pass legislation (and notably, a stimulus package).
Many long-term thematic trends will continue regardless of who wins. We are positioning to take advantage of those trends.
The US election and its specter of uncertainty have engrossed the world. Tonight's election has been framed as a battle for the soul of America. It is hard to imagine a more divided America than we see today; browsing the headlines of rival news outlets illustrates that Americans today do not even read the same news. It is nearly guaranteed that either the far left or the far right (or both) will be unsatisfied with the result of this election. The threat of civil unrest has reached a boiling point in many parts of the country. Some businesses are choosing to board up their store front in the event demonstrations become destructive. The uncertainty around today's election has been compounded by President Trump’s tirades about the potential for election fraud and threats of legal action. There is a strong possibility that the results will be disputed - to say the least. Much like 20 years ago, the Supreme Court may end up deciding a winner. (President Trump, as of last week, will have appointed 3 associate justices on the Court.)
That being said, there are some positive takeaways. A record number of Americans cast their ballots early to the tune of 96 million as of Monday. That amounts to two thirds of the total votes cast in 2016. While this election features two of the oldest candidates ever to seek the presidency, the largest voting demographic are young Americans with over 63 million Millennials and 23 million Gen Zers eligible this year. Young voters make up a majority of voters in Georgia, Texas and Arizona. Will this new generation of voters cast the deciding vote? One thing is certain: never has American politics been more present in the lives of so many people.
Americans do not technically vote for their President directly. Instead, the Electoral College votes on behalf of their state using a system devised in 1787. The system leaves millions of voters in today's landscape frustrated as the minority of votes will be largely discarded. The math results in an election result that hinges on a handful of counties in a few states. This is why today's candidates have focused their record-breaking $10.8 USD billion in campaign funds on select areas in central and southern states. The seven closely contested swing states are: Arizona, Florida, Michigan, North Carolina, Ohio, Pennsylvania and Wisconsin. Trump won all seven in 2016. Polls this year suggest all seven are in play, as are the Republican bastions of Texas and Georgia. This will be the last election with the current seat count. The 2020 census will recalibrate the math once again.
The uncertainty south of the border is likely to stoke increased market volatility until a clear winner is known. We note that in the long run, the stock markets are agnostic as to whether there is a Democrat or Republican president. However, each party has their own platform, which may prioritize certain industries over others. One factor that markets do appreciate is predictability, especially when it comes to policy. Some would argue that the Federal Reserve will have more impact on future market returns than the President. Whoever wins the election will have to work hard to stabilize a country that might need to be renamed the Divided States of America.
Once a winner is decided, we will provide an update on our forecasts and outlook. With various possible outcomes on the division of power between Republicans and Democrats in the Congress, Senate and Presidency, it is hard to predict what US public policy will look like for the next four years until there’s clarity on the election outcome. What we do know is that technology will continue to advance and our thematic investment trends will continue to evolve. The pandemic has catalyzed an unprecedented digital revolution that would otherwise have taken decades to accomplish. Despite the pandemic-induced global recession, we’ve seen some companies thrive from the changing habits of consumers and increased reliance on technology. We remain excited about the potential to see this trend translate into outsized gains for the companies positioned to ride this wave.
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