Some hints of certainty amid the big unknowns

Canadians went to bed on Tuesday not knowing the winner of the United States' presidential election — and they woke up the following morning to find out they still didn't know.

The uncertainty persisted through the day Wednesday, as vote-counting continued following a premature declaration of victory by Republican President Donald Trump and a later announcement by Democratic challenger Joe Biden in which the former U.S. vice-president indicated he was confident he was on track to unseat the incumbent.

Amid the vote's uncertain outcome, however, some certainties also emerged that will have a bearing on what the next four years could look like for Canadian businesses and investors, as well as for trade ties with the U.S.

One such certainty is that an overwhelming “blue wave” of Democratic wins did not materialize, as Trump hung on to key swing states such as Florida and Ohio, keeping him in the race for another four-year term.

Another is that political division in the U.S. remains high. Results for the Senate and House suggest the former could stay under the sway of the Republicans, while Democrats could retain control of the latter.

These developments could take major political change in the U.S. off the table, even if Biden and the Democrats, who saw their odds of victory increase on Wednesday, were to move into the White House.

“Although the final Senate results are not yet known, the Republicans' ability to retain a major influence in that body means that political change on other issues is also likely to be less decisive, even if the White House changes hands,” CIBC chief economist Avery Shenfeld wrote in a report to clients on Wednesday. “So those looking at the election as a turning point on climate change, energy sector policy, financial services regulations, taxation and other issues that have impacts on individual equities or other assets, can count on seeing less dramatic change, if indeed any changes are in the wind.”

A divided Congress could also lead to a smaller COVID-19-related stimulus package than the one for which Democrats had been angling, or prompt delays in getting such legislation passed. That might curb demand among American businesses for what Canadian companies are selling.

“The election outcome points to only a skinny outcome on the stimulus front, likely regardless of who wins the Presidency,” Bank of Montreal economists wrote in a report. “Overall, this should only modestly support near-term U.S. growth, with clear implications for Canadian exports and related domestic activity.”

Specific sectors of the economy, such as technology firms that have thrived during the pandemic, may also benefit.

“We expect tech companies, the quality factor and large-caps to perform strongly under a divided government — as they have done in the past,” a report from U.S. investment-manager BlackRock Inc. said.

Another winner could be the cannabis industry. Voters in New Jersey, Arizona, Mississippi, Montana, and South Dakota approved legalization initiatives last night, analysts at Beacon Securities noted, although a blessing from the U.S. federal government might be a stretch.

“While the federal races are still TBD, the state-level results look very promising for the cannabis industry,” the Beacon analysts wrote. “In our view, control of Congress is more important than the White House, as far as cannabis reform is concerned.”

Even legislative gridlock could come as a relief to Canadian companies sweating a possible tax hike on their U.S. operations under a Biden presidency.

In the same vein, though, firms looking to cash in on billions in government infrastructure spending or greenenergy initiatives may have to make other plans.