New Delhi: As the US goes to the polls to elect its new president, a popular belief has emerged in the stock market that Democratic challenger Joe Biden will be leading Donald Trump nationwide, albeit with a thin margin.
Market experts see little scope for Trump to pull out an Electoral College victory, like he did the last time during 2016 US presidential elections, even as he has managed to reduce the popularity gap with Biden in recent weeks.
Sakshi Gupta, a senior economist at HDFC Bank’s Treasury Research, said, “The markets right now are positioned for a Biden victory, but with perhaps a narrow margin.”
She added that this narrow margin may result in a prolonged period of uncertainty over the final verdict and may trigger some sell-off in stock markets worldwide.
Notably, because of COVID-19 pandemic, more than half of the US electorate are expected to vote through postal ballot this time and Trump has already declared his scepticism of the process.
“This will be the most corrupt Election in American History!” he had tweeted earlier.
“In short, he (Trump) is likely to fiercely contest the election results should he lose,” Gupta noted, adding: “A Biden lead could mean days and even weeks of bitter disputes and therefore we suggest investors to remain cautious during this period.”
Gupta said that an alternative scenario might be a clear “Blue wave”, which would give Democrats full and complete control of both the White House and Congress by a big margin.
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“In such a situation, the US equities and currency might react adversely due to Biden’s tax proposals. But we believe it would be positive for the emerging currency markets, including the Indian rupee, as a clear Democratic win would mean less uncertainty in the system,” she added.
“A Trump win is predictably the key risk to our forecast. Trump is perceived to be ‘dollar-positive’ and should the results go in his favour, a sharp rally in the USD is likely,” she concluded.
Meanwhile, US-based investment management firm Rebalance reviewed over 100 years of data to conclude that the stock market performance should remain steady following November's election regardless of whether Trump or Biden win.
"History clearly shows us that stock markets generally behave positively during both presidential election years and subsequent years and that the market has maintained its upward trend over long periods of time regardless of who ends up in the White House," Mitch Tuchman, managing director of Rebalance, said in a report.
Tuchman added: “The long-term average returns of a diversified portfolio of stocks and bonds is virtually the same during Republican and Democratic administrations and historically not significant for stock market performance.”
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