How the US election could impact the market

With many institutional investors eagerly awaiting the result before making any changes, what effect could each presidential candidate have if they are elected?

Article updated: 26 October 2020 12:00pm Author: Ian Forrest

With less than ten days to go to polling day in the US presidential election, Joe Biden retains his consistent lead in the polls following the TV debates. He leads in some key swing states but in others, such as Florida and North Carolina, the race is too close to call. Some big events, including the release of third quarter GDP data, are still to come over the next few days and could influence voters.

The US markets have risen over the course of the campaign, recovering back to pre-Covid levels, but that could well be because investors are focusing more on the fact that the US economy is recovering faster than many had expected and further economic stimulus measures are being discussed in Congress at present.

Apart from the race for the Oval office the elections also include every seat in the House of Representatives and 35 of the 100 seats in the Senate, so a lot could potentially change politically in Washington. That’s significant for investors because if Biden wins the presidency, and the Democrats also gain the Senate, then the new administration will have much more leeway for measures such as a large economic stimulus package. Biden has suggested that he would increase taxes and introduce new regulations relating to green issues such as fossil fuels and renewable energy. Some studies indicate that this might reduce average household incomes and economic growth over the longer term.

Investors should be aware that from the time that Trump entered the White House up to last February, when the pandemic struck, the S&P 500 index rose 60%. These are unusual times but its worth noting that few sitting presidents fail to win a second term, and four years ago Trump emerged victorious despite most polls predicting he would lose to Hillary Clinton. A disputed result is also possible which could mean several weeks of delay in reaching the final outcome, as happened in the 2000 election when faulty ballot cards resulted in recounts.
Overall its fair to say that there’s a considerable difference in the potential outcomes, so its easy to believe reports that many institutional investors are choosing to sit on their hands and wait for the result before deciding whether to make any changes to their holdings. That suggests the market could be very volatile in the immediate aftermath of polling day on the 3rd of November.


All information given including prices, yields and our opinion is correct at the time of publication. Our opinions on investments can change at any time and for our latest view please go to www.share.com. To understand how our Investment research team arrive at their views please read our Investment Research Policy.

Ian Forrest portrait photo
Ian Forrest

Investment Research Analyst

Ian’s background in investments, financial journalism and research has seen him advising private investors on equities and helping to manage portfolios. His qualifications include the Certificate in Financial Planning and the Chartered Institute for Securities & Investment’s Investment Advice Diploma.

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