Nov 04, 2020

Still waiting for the U.S. election results.

Fiscal stimulus is likely to be more limited than under a Democratic landslide

  • At the time of writing, it appears that markets are in for another nail-biter.
  • The tentative verdict of U.S. voters makes radical changes in terms of economic policy less likely, no matter who ends up in the White House.
  • The flip side of this is that there is also an increased risk of fiscal-policy paralysis.
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As counting continues in several key states, it appears that markets are in for another nail-biter.

Elections outcome – what we know so far

So much for hopes for a quick, timely and decisive result in the U.S. elections. As counting continues in several key states, it appears that markets are in for another nail-biter. At the time of writing, it appears almost certain that the Democrats will retain control of the House of Representatives, while the Republicans have a fairly decent chance of retaining their Senate majority. As for the presidency, that is still anyone’s guess, and it will probably take a few more days, at the very least, until there is clarity.

Market and policy implications

Markets generally do not appreciate uncertainty. On the plus side, voting has been orderly and with the exception of a few glitches for example in Georgia, so has the vote count so far. That is noteworthy, given the unsually high voter turnout even as the election took place during a once in a century pandemic.

Moreover, the tentative verdict of U.S. voters makes radical changes in terms of economic policy less likely, no matter who ends up in the White House. Given the narrow partisan split in the Senate, the next president will likely have to convince centrist Senators on either side to pass any meaningful legislation. That means, for example, that even if Joe Biden were to win, we believe the probability of meaningfully reversing Donald Trump’s corporate-tax cuts would be quite low. And a re-elected President Trump would have to continue to work with House Democrats on any further fiscal stimulus.

More broadly, there is an increased likelihood of policy-paralysis risk, not just on fiscal issues. We believe that the prospect of fundamental reforms, from healthcare and other entitlements to climate change or big infrastructure packages, has also receded.

Asset-class implications:

Fixed Income and Currencies:

In light of the results so far, fiscal stimulus may be more limited, as well as perhaps better targeted, than under a Democratic-landslide scenario that markets had been increasingly anticipating. We expect yields on 10-year U.S. Treasuries to remain range bound below 1%. That supports our view that interest rates will remain low for longer.

Corporate-credit markets in both the United States and Europe have been resilient, but further political uncertainty could potentially create opportunities. We believe that emerging-markets bonds are likely to be the most volatile; we would consider widening spreads as attractive entry points, though selection is key.

The U.S. dollar has already recovered some of the ground lost in recent weeks and we remain constructive, with a 12-month target of 1.15 dollars per euro.


If overnight action in the futures markets is any guide, the immediate outlook for equities will strongly depend on the changing perceptions for the presidential race in coming days. In our view, a better approach than second guessing the results may be to focus on fundamentals. As noted above, the likelihood of higher corporate taxes has already decreased. Of course, a Biden administration might still rescind many de-regulatory steps, but overall, we feel a narrow win might encourage Joe Biden’s centrist instincts, not least with regard to the energy sector. Meanwhile, a re-elected President Trump would still have to deal with the Covid-19 pandemic.


For both private infrastructure and non-listed real estate we believe the ability to find cross-party majority support of whoever wins the White House will be critical. In addition to broad infrastructure and fiscal-stimulus plans, the next administration will need to clarify many specific issues, from broadband internet connections in rural areas to policies on mortgage taxes, immigration, and environmental regulation. Overall, in our opinion, the results so far look broadly neutral, but much will depend on not just who the next president will be, but also on key appointments. Even in the smoothest of electoral contests, that usually takes time.

Our 2020 U.S. elections CIO Special

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