Wall Street could call the 2020 election before the media does #Breaking112
Although TV networks may not have enough confidence in the immediate hours after polls close to announce whether President Donald Trump has been reelected, the writing may already be on the wall in financial markets.
“On election night, I think it is very likely the market declares the winner before the news networks,” Ed Mills, policy analyst at Raymond James, told CNN Business.
A win for President Trump could also be viewed as a positive for markets because it would remove the specter of higher taxes and regulation — and eliminate the risk of a contested election.
North Carolina could offer early clue
In particular, Mills said that investors will be zeroing in on North Carolina and its 15 electoral votes.
Unlike some states, such as Minnesota, where counting mail-in ballots begins after polls close on Election Day, the Tar Heel State started counting votes Tuesday, the 14-day mark before the election. That extra time means the vote count could be known earlier than in other states.
“If Joe Biden is declared the winner in North Carolina on the night of the election and Cal Cunningham has won the Senate seat, it’s going to be pretty clear it’s a Democratic sweep,” said Mills.
In other words, a clear-cut Biden in North Carolina would suggest a big night for the Democrats.
“The markets will say, ‘OK if Biden won North Carolina, then he won enough of the swing states to put him over 270,'” said Mills.
Contested election is No. 1 fear
But a one-two punch of no contested election and a blue wave that paves the way for powerful fiscal stimulus could set off a relief rally on Wall Street, Mills said.
“The market will be happy about not having a Bush-Gore 2.0 situation,” said Art Hogan, chief market strategist at National Securities Corporation, alluding to the five-week standoff that followed the 2000 election. “The market really abhors a vacuum.”
Hogan said although markets are probably going to head higher in 2021 no matter who wins, there is probably more “upside” if Biden wins. “This market has been tiptoeing into position for a Biden victory,” he said.
Goldman Sachs: Blue wave is likely
Chris Krueger, policy analyst at Cowen Washington Research Group, said that the most likely scenario is for a “Biden blue wave,” with Democrats taking at least 52 seats in the US Senate.
Goldman Sachs is similarly advising its clients to prepare for a potential blue wave — an outcome the Wall Street bank says would lead to faster economic growth.
“Public opinion polls, prediction markets, and statistical models used by news organizations imply that Democrats are likely to win control of the White House, House and Senate on November 3,” Goldman Sachs economists wrote in a report to clients Monday.
Goldman Sachs expects that spending would increase the most under a Democratic sweep — stimulus that would outweigh the negative effects of proposed tax hikes. The Wall Street bank said that includes a massive fiscal stimulus package of around $2.5 trillion (assuming one doesn’t pass before the election).
By contrast, if Democrats win the White House but Republicans retain control of the Senate, the stimulus package would likely be “well under” $1 trillion, Goldman Sachs said. From the market’s perspective, the silver lining would be a GOP-controlled Senate would prevent a rollback of Trump’s 2017 tax cuts.
Lessons from 2016
Of course, there is no guarantee that if Wall Street “calls” the election on November 3, that prediction will be borne out by the facts. Likewise, the initial market reaction could quickly reverse.
“2020 could still throw us a curveball,” said Mills of Raymond James.
“The overnight trading session was horrendous for several hours. And then life went on and the market adjusted to what appeared to be pro-growth and pro-business policies,” Hogan said.
If the polls are wrong and Trump wins decisively, investors would be relieved that the specter of higher taxes and regulations are removed. But it would also likely mean smaller fiscal stimulus and more tariffs.
“There would be concern that we’re going to continue launching trade wars with questionable economic benefits,” Hogan said.
“What really matters is not who is sitting at 1600 Pennsylvania Avenue,” Hogan said, “but how much progress is made in getting a vaccine.”