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CNF Focus | The most tortuous US election in the history

The most tortuous US election in the history

Before the general election, JP Morgan had made predictions on the outcome of the general election [1]:

a. If Biden wins and the Democrats take control of the Senate (the "blue wave"), policies such as tax increase will have the most negative long-term impact on the market, and the S&P 500 index may even fall to 2,500 over the long term.

b. If Trump wins and the Republicans take control of the Senate (the "red wave"), the markets will be most positively impacted by an easing environment with certainty and the S&P 500 index will rise to 3900.

c. If Biden wins but the Republicans hold the Senate, or Trump wins but the Democrats hold the Senate, both scenarios are on the positive side. Because it is difficult for the White House to revise tax rates, the existing easing environment is maintained and a third round of stimulus may be introduced soon. The S&P 500 index could rise to 3,600.

Biden has maintained a significant poll lead over Trump all year and is lopsidedly favored by all sides. Goldman Sachs, as of October 28, believed that the probability of a blue wave was about 61%. [2] The famous analysis website FiveThirtyEight integrated various polls and even put the odds of a Trump victory at only 10% and a big win for the Democrats. [3]

At 8 a.m. GMT on November 4, the eastern states of the United States were the first to start counting votes. As the East is the traditional Democratic Party vote warehouse, Biden was almost all the way ahead, which is in line with previous expectations. Even the traditional red state Texas was once Biden’s lead, deepening the market’s expectations that Biden will win the election.

By 10:30 a.m., however, as more and more votes were counted, it turned out that Trump had a lead in many state. Most surprisingly, the four key swing states-Florida, Pennsylvania, Michigan, and Wisconsin-all flipped red! In 2016, Hillary lost the general election because she lost Florida by 1%, will it happen again this year? The possibility that Trump could win the election was hardly included in the market expectations. In just half an hour, the Nasdaq-100 Index future was up over 3.5%!

CME Nasdaq-100 Index Futures trend on November 4

While the markets were highly volatile, investors and analysts were also wondering why the polls deviated so dramatically from the results. It quickly became clear that the 2020 election was unique. Democratic Senator Sanders pointed out that more than 90 million people voted early this year, far more than any year in history. Early voters predominantly voted for Biden, and voters who went to the polls in person predominantly voted for Trump. However, states such as Pennsylvania and Wisconsin stipulate that staff can only start processing the millions of mailed ballots until the day of the general election. This means that the votes issued at the polling station are likely to be Trump's significant lead. With more and more mailed votes counted, Biden will gradually approach or even overtake. [4]

The updated voting data also confirms this view. At 15:30 GMT, Trump made his victory speech arguing that mail-in ballots should be stopped from being counted, at which point Trump was still leading by 4.1% in Wisconsin. Just 2 hours later, Biden had overtaken in Wisconsin! By all counts, more than 70 percent of the mail-in ballots were cast for Biden. With the results of the in-person voting already counted and the rest being all mail-in ballots, Biden's votes are increasing rapidly. The market returned to the expectation that Biden would win the election, and the index fell from higher to lower. [5]

Simultaneously with the presidential election, there is also the election for both houses of Congress. Much to the market's surprise, the Democrats did not lead in the Senate race, which means that the pessimistic expectations of a "blue wave" will not appear. As long as the Republican Party is in control of the Senate, Biden's tax policy will be difficult to be passed and the monopoly investigation of technology companies will be also difficult to carry out. The election result for the stock market become quite optimistic. On Nov. 4, the Nasdaq-100 index opened higher and eventually closed up 5%, setting the largest increase in the past eight months.

The U.S. election not only affects the U.S. stock market, but also has a huge influence on many other markets.

SGX FTSE China A50 Futures trend on November 4-5

On the night of November 4, the China A50 futures on SGX rose more than 2% to a 10-year high. The next day, the A50 futures continued to rise after a slight correction, and reached to another record high.

On November 5, the Hang Seng Index also opened higher and eventually rising 3.25%, which is the largest increase in the past three months.

Adrian Zuercher, head of asset allocation at UBS Wealth Management, believes that for emerging markets, a Biden presidency and a Republican Senate could be the most favorable scenario. In this case, the United States will introduce some fiscal stimulus measures, the Federal Reserve will continue to remain dovish and Biden's attitude on trade issues is more moderate than Trump. With a divided US government, emerging markets are more attractive. [6]

CBOT Soybean Futures trend on November 4-5

Benefiting from the expectation that Biden may seek to resolve the trade dispute with China, US soybean is an agricultural product that may be imported in large quantities by China and the futures in CBOT rose more than 5% in two days, setting a new high in the past four years.

Has the US election come to an end?

In the speech on November 4, Trump stated that all vote counting should be stopped immediately and a series of actions have been initiated.

The Trump campaign team issued a statement that they have filed a lawsuit in Michigan, asking the state to stop counting votes until they obtains "meaningful authority" to observe the counting process. In addition to Michigan, the Trump campaign announced that they will take legal actions in Pennsylvania and Georgia. CNN said they are filing a lawsuit against poll observers and voter identification in Pennsylvania. [7] For Wisconsin, where the vote count has ended, Trump has requested a recount. According to local regulations, since the difference between Biden and Trump's votes is less than 1%, candidates have the right to propose a recount, but the expenses must be paid by themselves. [8] According to Fox News, the Trump team has also filed a lawsuit in Nevada allegingvote fraud. [9]

If he can't gain an edge in district court, it possible that Trump may go to the Supreme Court. Currently, there are six Republicans and three Democrats on the Supreme Court's nine justices.

There is a precedent in US history for the Supreme Court deciding presidential elections.In the 2000 presidential election, Bush and Gore were separated by only 1,700 votes in the initial count in the crucial state of Florida. Under Florida law, a recount is possible with a margin of 0.5% or less. On November 10, Florida completed its machine recount, but at that point there was only a 327-vote difference! Those 327 votes will determine who wins the presidential election. Gore therefore petitioned the district court for another hand-count. Since then, the two sides have been engaged in a lengthy judicial game over whether the votes should be hand-counted, in which precincts they should be hand-counted, and the deadline for hand-counting. [10]

On December 9, the Supreme Court called a halt to the hand-counting of votes in Florida, and on December 11, the session opened with a 5-4 decision by the Supreme Court justices to rule that the hand-counting would no longer take place. On December 13, Gore was officially declared defeated and the election came to a close, 36 days after polling day. [10]

The S&P 500 continued to fall after the vote-counting in the 2000 election, dropping a total of 7% at one time. After the Supreme Court’s decision, a rebound period of one and a half month came. Because it was in the aftermath of the dot-com bubble, U.S. stocks briefly rebounded and then fell again.

If Trump refuses to admit defeat and formally file a lawsuit with the Supreme Court, how long will it take and how will the Supreme Court decide? This may give the market another layer of huge uncertainty.


[1] 智通财经,《小摩:“蓝色浪潮”是最坏的结果,标普500指数或跌至2500点》


[2] 交通银行,《高盛:无论谁赢得大选 美股到明年中都将上涨约10%


[3] FiveThirtyEight, Biden is favered to win the election


[4] 朱利安,香港01,《【美国大选】桑德斯超神预测选情及特朗普反应》


[5] 富途资讯,《直击大选|美国大选决胜日!选请实时滚动播报》


[6] 小蒹,财视中国,《瑞银财富管理:分裂的美国政府对新形势市场股市仍然有利》


[7] 雪球《连失关键两州!特朗普急了,要求多州重新计票!纳指一夜飙升4%大选结果对股市影响如何?》


[8] 耿直哥,环球时报《特朗普已经开始四处筹钱了!》


[9] 陈志杰,环球网,《美媒:特朗普竞选团队将在内华达州提起诉讼》


[10] 熊园、刘新宇,智通财经,《参照2000年,有争议的美国大选结果将如何影响市场?》


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