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How a contentious election affects a peaceful transition of power
What history has shown us about contested elections and peaceful transitions of power.
Stocks moved higher Wednesday as markets digested a still-uncertain election that appears to signaling higher odds of Democrat Joe Biden winning the presidency and Republicans keeping control of the Senate.
Perhaps more critically, investors are cautiously betting the nation may avoid a drawn-out contested race for president.
“They’re thinking, ‘Let’s just get through these next couple of days without a constitutional crisis,” says Jason Ware, chief investment officer of Albion Financial Group.
President Trump said he would take the election to the Supreme Court. It was unclear exactly what legal action he might try to pursue, but a contested election was among the worst scenarios anticipated by investors hoping for an end to the uncertainty after a long, bruising campaign.
Yet that doesn’t mean the president has the legal footing for a sound challenge, Ware says.
In early trading, the Dow Jones industrial average surged nearly 500 points, or 1.8%, to 27,976. The Standard & Poor’s 500 index rose 2.3% to 3,447. And the tech-heavy Nasdaq jumped 3.3% to 11, 534.
Although key battleground states are still tossups, Biden has pulled ahead in Michigan and Wisconsin and may be poised to win in several key states by margins of more than half a percentage point, avoiding a required recount, Ware says.
Although Biden has proposed tax increases and a rollback of President Trump’s campaign to cut environmental and other regulations, he also would ease trade tensions with China and allow more immigration – positives for U.S. corporations.
Meanwhile, Republicans appear more likely to narrowly retain their Senate majority, reducing the odds of a robust stimulus package topping $2 trillion that would have given the economy a bigger jolt and that was favored by investors, Ware says.
Yet markets may be content with a $1.5 trillion relief package, a more likely scenario under a Biden presidency and Republican-controlled Senate.
At the same time, a Republican Senate means other positives for markets – notably more modest tax increases, including on corporations, than those Biden has proposed. It also signals a lower likelihood of new regulations on technology companies, boosting the Nasdaq.
“It will take a mixed result,” Ware says.
Trump or Biden: Who would boost growth, restore jobs faster?
Most polls had predicted a Biden victory, and many investors took the forecasts of a so-called “blue wave” of Democratic Party wins to mean the U.S. economy might soon get a big, fresh infusion of help. But with the race too close to call, some analysts said they also might be reassured by the prospect for a continuation of Trump’s pro-market stance.
“On the one hand with the fiscal implications of a Biden win/blue wave that’s a bit of a surprise – on the other Trump is widely considered more market-friendly, so one can see how it nets out a small positive,” Innes said.
In European trading, Germany’s DAX recovered from early losses, gaining 0.1% to 12,103. In Paris, the CAC 40 rose 0.4% to 4,823. Britain’s FTSE 100 advanced 0.3% to 5,805.
In Asia, the Nikkei 225 in Tokyo advanced 1.7% to close at 23,695.23 while the Kospi in Seoul added 0.6%, to 2,357.17. India’s Sensex rose 0.9% and the S&P/ASX 200 in Sydney lost 0.1% to 6,062.10.
The Hang Seng in Hong Kong declined 0.2% to 24,893.59, while the Shanghai Composite Index edged 0.2% higher, to 3,277.44.
The 2016 election rattled world markets as results showed Trump ahead of Hillary Clinton. The S&P 500 slumped early the next day but ended 1.1% higher.
This time around, market players are waiting to see if the election brings four more years of Trump’s “America first ” approach to trade and other policies or an administration more likely to work with other countries on such issues as climate change.
The large number of Americans who voted early means the result of this presidential election might not be known for days. A contested election would inflict still more uncertainty on markets buffeted by bouts of volatility as the coronavirus pandemic has waxed and waned.
“The market hates uncertainty and if we have continued uncertainty, then we’re going to see prices fall, we’re going to see volatility remaining high,” said Kiran Ganesh, analyst at UBS bank.
History shows stocks tend to rise regardless of which party controls the White House. But investors are keen to see a clear winner from this election, even if it takes some time.
The makeup of the Senate is another unknown overhanging the markets, given the potential for legislative gridlock. Another is the timing of a possible COVID-19 vaccine that could save lives and help heal the economy.
While investors and economists have been clamoring for a renewal of stimulus after the expiration of an earlier round of support from Congress, many professional investors say what matters most is what happens with the pandemic.
Apart from the election, investors are awaiting the Federal Reserve’s decision on its interest-rate policy on Thursday. Its earlier moves to slash interest rates to record lows and to step forcefully into bond markets to push prices higher have helped Wall Street soar since March.
The Labor Department is also releasing its jobs report for October on Friday, where economists expect to see another slowdown in growth. Meanwhile, corporate earnings reports are showing lower profits in the last quarter, but not as miserable as Wall Street had feared.
In other trading, U.S. benchmark crude oil gained 94 cents to $38.60 per barrel in electronic trading on the New York Mercantile Exchange. Brent crude, the international standard, picked up $1.01 to $40.72 per barrel.
The dollar bought 104.60 Japanese yen, down from 104.95 late Tuesday. The euro weakened to $1.1698 from $1.1718.
Contributing: Associated Press