There is a lot of ink being spilled right now from every media outlet regarding the current electoral situation, the various paths to victory for both Biden and Trump, and discussion on the fact that the entire situation still remains undecided as we head into the evening.

I am not going to weigh-in on the political side of this situation as I feel I have little to offer in terms of a differentiated view. Stating the obvious - this situation is going to take time for the dust to settle. I do, however, want to offer a comment on today’s market action and how we are thinking about the potential outcomes and the effects on the markets going forward.

Today global markets closed up between 1-3%. From our perspective the key piece of information the market is focused on is the fact that it appears that the Senate is likely to remain in Republican hands (narrowly). The market appears to be pricing in “gridlock” in which a lack of a cooperation leads to limited government intervention. That dynamic takes off the table a window for “radical legislation”. Some investors had feared a more progressive agenda could lead to higher taxes, Green New Deal, and more lockdowns.

Historically, a split congress has been a net positive for stocks which is illustrated in the chart below:

Source: CFRA

We would caution that just because the market’s initial reaction was positive, this does not necessarily mean this will continue and we continue to expect some volatility in the coming days as the market digests the new political landscape and deals with the ongoing too high COVID numbers. We remain upbeat in the long-term on stocks, but we remain of the view that it will be a bumpy ride at least until there are signs that the virus is under better control.