Current US election polls have a Joe Biden win and a Democratic Party sweep of both houses of Congress at roughly a 50 per cent probability, a Biden win with a split Congress at 10 per cent and a Donald Trump win with a divided Congress (i.e.- the status quo) at 40 per cent, according to Fidelity International.
“Each of these election results has different near- and long-term implications for market outcomes. Of course, polls and projections don’t always hold (as we learned once again in the 2016 presidential contest), and with less than three months to go until Nov. 3, anything can happen. But for investors, attempting to analyse the potential trajectories for the US in each of the above scenarios can help to position for the range of potential outcomes,” said Wen-Wen Lindroth, Lead Cross-Asset Strategist, Fidelity International.
“For guidance as to how things might play out, we can draw lessons from the last presidential election cycle. Trump’s 2016 win over the Democratic establishment candidate Hillary Clinton, who had been the clear favourite in the polls in the runup to the ballot, effectively sent the Democrats into the political wilderness. Trump had ridden a wave of populism by targeting those who were ‘left behind’ in the US rebound from the 2008 financial crisis, especially in landlocked and rural regions.
“Biden, who was vice president under Barack Obama from 2009-2017, along with the Democrats, have learned an important lesson in economic policy from Clinton’s defeat: in the wake of a crisis, if the party in power is perceived to neglect the economic well-being of key parts of the electorate (as measured through employment and wages), it will soon find itself out of power.”