With less than four weeks to go until the U.S. presidential election, investors remain concerned about the possibility of a disputed election result that could drag on beyond election night, something along the lines of the Bush vs. Gore Florida recount in 2000, which gives rise to the risk of legislative paralysis until the results are eventually sorted out. This would have negative implications for the U.S. economy given it comes at a time when more fiscal stimulus support is crucial to support the nascent growth recovery.

 

We must be careful not to put too much weight on the polls, 2016 taught us that lesson. Nevertheless, the latest average polling data are pointing to rising odds of a clear outcome on election night as Biden’s lead in the polls have widened recently after narrowing from late August to September (see chart below).

 

Bottom line: Polls—particularly at the national level and to a lesser extent in battleground statessuch as Florida and North Carolina—are shifting from a close election and potentially extended “contested” uncertainty to more a clear-cut Biden victory and clean succession. For markets that have been increasingly nervous about election risks, a clean Democrat victory would significantly reduce uncertainty in avoiding a potentially prolonged and messy legal battle.

 

The most important question from our perspective is, do elections impact the market?

 

 

It may come as a surprise but answer is clear. The chart above illustrates the 48 months of a presidential term, for a Republican President or Democratic President with sweeps by whomever.

 

Looking at the first two years after any US Election, what you see is that it really doesn’t matter. The administration has very little impact. In terms of the markets, there is no benefit to having a Republican in office or a Democrat in office over the full term.

 

I do not put a lot of credence into events, there is no value in trying to pick a front runner or speculate on what is going to happen. Our risk management process does not have to rely on trying to predict the impact of an event. Our rules based process has successfully navigated the most volatile year in possibly 100 years and we remain flexible in our positions and are adaptable enough to change as change is needed.