US | Equities

Could Uncertainties Start to Abate?

_{Posted on Nov 9, 2020}

Joe Biden has been named US President-elect by national media, who by custom, report the individual state results prior to their final certification by the individual states. At time of writing, media report Biden has won at least 290 electoral votes with 270 need to mark victory. However, the counting of mail-in ballots continues in accordance with the laws of each state. Thus far, there has been no concession from President Trump.

While there are likely to be recounts in close state elections such as Wisconsin’s, the margin for Biden’s victory appears hard to challenge legally, though President Trump has vowed to pursue them. The latter’s action in coming weeks may still present a source of uncertainty on many fronts for public and financial markets.

The Senate is now the greater uncertainty, with the Democrats retaining a longshot of unifying control of the government. Georgia is expected to hold a runoff election on January 5 for the two Senate seats. The lack of clear Senate leadership reduces the probability of significant legislative action this month, leaving the needed COVID-19 stimulus package to the new Congress in January or later.

However, perhaps the greater clarity post-election is for global trade. US foreign policy could enter a more predictable phase without escalating tariff threats. Citi analysts see a declining US dollar and rising emerging markets as a likely outcome. In contrast, the fate of regulation for large technology firms remains wide open given a potentially split Congress.

Looking ahead, Citi analysts believe that the arrival of an effective vaccine is likely to become the more important news than the result of the US Presidential race. The trifecta of knowing who the President will be, that the end of the pandemic is at hand and that sufficient stimulus is available to allow for a recovery in the US and the West, is likely to mark the start of the New Economic Cycle.

While parts of the world economy already saw a sharp recovery from the record drop of the initial COVID-19 shock, a much broader, self-reinforcing period of economic growth could follow COVID-19’s departure. A rotation from “stay at home” to “leave home” equities could begin, and equities are favored over bonds given sustained low interest rates in coming years. Certain trends could also accelerate post COVID-19 in a New Economic Cycle. A Biden administration could add further weight to a push for green energy solutions, joining even the EU or China in this effort. With a divided government and COVID-19 to fight, US pharmaceuticals and broader healthcare equities could also see renewed confidence.