National Post (Latest Edition)

Markets in for rough ride after U.S. vote

This election could be much worse than 2000

- Diane Francis

In 2000, a dispute involving ballots in just one state — Florida — delayed the outcome of the presidenti­al election for five weeks as the matter crawled through courts. During that time, the S&P 500 fell 12 per cent due to the uncertaint­y. This election could be much, much worse.

This November, there could be half a dozen or more electoral snafus at the same time, which could muddy the results for weeks. It’s almost certain that the outcome of the election will remain uncertain for an undetermin­ed period of time. It’s also unlikely that a new stimulus program to prop up the economy will be passed before the election, as the Republican Senate will be preoccupie­d with getting re- elected and anointing a new Supreme Court justice. These are two crucial factors that market players and business models have generally not taken into account.

There is no consensus as to how long the election mess may last. For instance, Goldman Sachs analysts claim that fears of a crisis over the outcome are “overblown.”

“It seems fairly likely that there should be enough informatio­n on election night from states that will report results quickly for the market to be able to gauge the likely winner,” wrote economists Michael Cahill and Alec Phillips. “In other words, the S&P can trade the likely outcome, even if the AP does not call the race.”

By contrast, UBS spokesmen told investors that if election day passes without a clear winner, strong market volatility will result and money may head for safe haven assets such as gold and U.S. government securities.

A worse result would be violence in the streets, mass protests, as well as a protracted dispute that may last for months, not weeks. The anxiety is fanned by President Donald Trump, who has questioned the legitimacy of the electoral process. Some worry about a coup d’etat.

But America’s institutio­ns are strong, notably the Pentagon and the courts, and his attacks on the election may be only designed to get his supporters out on election day.

However, delays due to a large percentage of mail- in ballots will make it unlikely that the winner will be declared on Nov. 3. A firm called Good Judgment forecasted that there was a 16 per cent probabilit­y that Trump or Joe Biden would concede by the end of the week; a 43 per cent chance a winner wouldn’t be determined until Nov. 26; and a 37 per cent probabilit­y that a concession will come between late November and inaugurati­on day on Jan. 20, 2021.

Then there are other, more worrisome scenarios that will afflict markets: if Trump claims the results are fraudulent; if left- and right-wing groups intervene at polling stations; if supporters of the two candidates clash openly in Washington, D.C.; or if Trump triggers a full- blown constituti­onal crisis by trying to call in the military to restore order, something the Joint Chiefs of Staff have said they will not do.

If any of these scenarios occur, markets would be left in limbo, while foreign relations, government operations and infrastruc­ture spending would be stalled or put on hold.

This is new territory. The spectre of political mischief making, added to the resurgence of COVID-19, has caused markets to begin falling this month, as some investors took profits or pivoted to safer sectors or asset classes.

Conversely, a clear- cut winner may also emerge immediatel­y on election night. But this won’t mean that market turmoil won’t follow. A Trump landslide victory, combined with the expected Congressio­nal sweep by the Democrats, will set up years of confrontat­ions. A Biden landslide and a Democratic Congress will also roil markets for a time as health care and banks take a hit and the dollar drops, but mega spending kicks in to help the recovery.

For markets worldwide, the reality is that, despite globalizat­ion, when America sneezes, the global economy catches cold and some may even get pneumonia.

 ?? Al Drago / REUTERS ?? There are many worrisome scenarios that could affect markets after the upcoming U.S. presidenti­al election, Diane Francis writes.
Al Drago / REUTERS There are many worrisome scenarios that could affect markets after the upcoming U.S. presidenti­al election, Diane Francis writes.
 ??  ??

Newspapers in English

Newspapers from Canada