Tonight is the eve of the election day which decides who is going to be the President of the most powerful nation on Earth – the USA.
The importance of the USA in world political and economic affairs makes this election one of the most anticipated events of the year.
Will Trump get re-elected? Or will Biden replace him? As of this writing all bets are off. In fact we might not even know for sure at the end of election day too. The main reason being the significant number of postal ballots due to the ongoing pandemic.
Given this, I would like to share my thoughts on the impact of the election result outcomes on the Stock Market.
Three Scenarios
I would broadly classify the outcomes into three main scenarios. First is a Trump Win, Second is a Biden Win and the third is a Stalemate.
Of course there are several details I am glossing over the control of the Senate and the decisiveness of the wins etc. I am no expert at it. I would leave that to the political commentators.
Given these three possible outcomes here is what I think will be the impact on the Stock Market.
Trump Win
Trump Win and more importantly a decisive win will mean an early decision on the second stimulus. This can help tide over the possible second wave of the pandemic. We are seeing instances of this in Europe already. The second wave has already caused some governments like the UK to shutdown.
The stimulus package and the continuation of the favorable Corporate Tax and Capital Gains Tax implies that the markets will rise in response. This rise will be broad based and across almost all industries.
Biden Win
A Biden win and a decisive one at that means that the stimulus bill may get delayed but not denied. The stability of the government that it indicates means that the markets will once again increase on a broad basis. But, I believe that this increase would not be as aggressive as in the case of a Trump Win.
One of the reasons is the Biden Plans to increase Corporate Tax and Capital Gains Tax. This can lead to a subdued hurrah!
But, on the bright side, Clean energy stocks like EVs, Solar, Wind, Natural Gas can benefit significantly in Biden’s 2T $ Clean Energy Plan.
Stalemate
This is the nightmare scenario of the three. A stalemate means situations like the house is controlled by the opposite political party to that of the President. Even worse, the election results might not be decisive enough. This means that the matter could go to the courts and the results can be withheld and unknown for an extended period of time.
There could be protests, riots etc, from both sides. All of this means that the stimulus bill would become uncertain and so will the political direction of the USA. Markets HATE uncertainty. This means that in any form of a stalemate I expect the broad stock market to take a hit. I don’t think it will be as bad as the March lows but there is an off-chance that it might as well be.
In any scenario, my advice is to not get swayed by the market fluctuations due to the election and stay the course. FIRE is a long journey and in the long run investment returns are dependent on much broader economic factors rather than short term political ones.