(Bloomberg) — The U.S. election remains too close to call after a dramatic night of swinging fortunes for Democratic nominee Joe Biden and President Donald Trump.
In the latest twist, Trump falsely declared early Wednesday that he’d won re-election and said he would ask the Supreme Court to intervene, even as key battleground states continued vote counts that may take some time to resolve. The Senate appears likely to remain in the hands of Republicans.
Investors were whipsawed by volatile markets. S&P 500 futures gyrated between a gain of 2.1% and a loss of 1.3%. The yield on 10-year Treasuries fell as low as 0.76%, a decline of 14 basis points. The Bloomberg Dollar Index rallied 1% before giving up a slice of the gains.
Here’s what some market watchers are saying:
“This election has the potential to get much worse than the 2000 dispute, due to the more polarized nature of U.S. politics,” said Ranko Berich, head of market analysis at Monex Europe Ltd. in London. “Should the courts fail to resolve the dispute, it falls to the legislature and constitutional norms that have rarely been tested in the U.S. This is exactly the kind of stuff that spooks currency markets and could lead to more serious losses for the greenback.”
Bye Bye, Blue Sweep?
“Both the stock and bond markets are saying the same thing: there’s a lower probability of a Blue Sweep, for sure, and higher likelihood that Trump wins,” said Jamie Anderson, head of U.S. trading at asset manager Insight Investment, which oversaw about $946 billion as of September.
With a Trump re-election, a smaller, tax-friendly stimulus package might still come to market, he said, which for bond investors might mean less issuance to absorb at a time when federal deficits are swelling amid the pandemic.
“The bond market was efficiently priced for a ‘Blue Sweep’ and potential for higher deficit spending,” said Subadra Rajappa, head of U.S. rates strategy at Societe Generale SA. Now, “it is looking less likely that we will have the final results soon. So you are seeing a flight to safety as bond investors brace for uncertainty.”
Pennsylvania Is ‘Critical’
“At this point, I’m not sure the market is trading only on Trump,” said Evercore ISI strategist Dennis DeBusschere in New York. “The Senate looks increasingly likely to be Republican.”
He added that “Biden with a Republican Senate is really good for tech as well. I.e., Trump could lose and I’m not sure market internals would change from the current moves (Nasdaq 100 up, rates down etc.).”
“It looks like we will have to wait till tomorrow for an outcome. Pennsylvania is critical and we won’t get much more till tomorrow,” he said.
Long S&P/Short Nasdaq
Rising stocks, a stronger dollar and higher Treasuries mean “higher Trump pricing, ‘America First,’ less fiscal stimulus, less taxes,” said Nader Naeimi, head of dynamic markets at AMP Capital Investors Ltd. in Sydney. “Nasdaq futures directly correlate with Trump winning. And as a ‘Blue Sweep’ is looking less likely, tech is rallying.”
“In my view, that’s a rally to fade,” he said. “Long S&P/short Nasdaq is how I am playing right now” as “global regulatory pressures on tech will continue to intensify no matter who wins the election.”
Caution on Conclusions
“I just would not leap to any big conclusions,” said Brian Barish, chief investment officer at Cambiar Investors LLC in Denver. “We all saw that in 2016, markets kind of did not get much right about the impact of the election in the initial hours after it was clear Trump would win.”
A Senate Democrat majority of more than 52 seats looks unlikely, he said. “That’s as much as I can see clearly,” but “it does look like a lot of (systematic) polling error again, which is an interesting story in and of itself.”
Equities Versus Bonds
“Equity markets and FX/bond markets are viewing the risk of election result delay differently,” said Masahiro Ichikawa, a senior strategist at Sumitomo Mitsui DS Asset Management Co. in Tokyo. “There is a risk-off mood as dollar appreciated and yen weakens, with expectation that the election delay could be prolonged.”
“There’s mixed reactions/views to the risk of not finding out the election outcome today,” but “either way, regardless of who wins after a possible delay, there will be an economic stimulus bill that will be a positive for the equity markets.”
(Updates with section on contested scenario. A previous version corrected the location of an analyst.)
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