Market Update – 7th October 2020.

Global equity markets got off to a positive start this week after Donald Trump was able to return to the White House, coupled with the growing prospects of an undisputed election result.

As we have previously said, global equity markets can deal with any eventuality, but hates periods of uncertainty – and it isn’t that equity markets prefer one candidate or party over the other, but recent polls have given Joe Biden a clear lead over Donald Trump, which suggests we are no longer heading towards a contested election.

However, this positivity reversed just before 8pm last night (UK time, 6 October 2020), after Donald Trump tweeted that he had ordered stimulus negotiations to stop until after the US Presidential election on 3 November 2020 and claimed that the Democrats had been negotiating in bad faith.  Subsequently, the Dow Jones fell just over 600 points, or 2.2% within just a few minutes.  The Dow Jones finally ended the day down 375 points, having been up over 200 points before the tweet.

While the equity market’s knee-jerk reaction is understandable, at the expense of appearing pollyannaish, this tweet, while disappointing, doesn’t really change much.  As we highlighted following the death of US Supreme Court Justice Ruth Bader Ginsburg on 18 September 2020 (please see here), the chances of getting the Republicans and Democrats to agree on a new fiscal stimulus package before the election was unlikely.

Consequently, we believe it is not if, but when, we get fiscal stimulus, as a compromise is highly likely after the election, whoever wins.  Hence we need to look beyond the initial disappointment of the tweet and look at the end result:  stimulus will be provided to help those American households and businesses that have been hard-hit by the coronavirus outbreak and associated lockdowns.

Admittedly, there may be differences in the timing of the stimulus, depending on who wins:  if Joe Biden (Democrat) wins, the stimulus may not be agreed and implemented until after he is inaugurated on Wednesday 20 January 2021, which could, for example, hurt US retail stocks given it will be after the crucial Christmas trading period, while the US airline companies are now more likely to go ahead with their planned redundancies.

As US equity markets fell after the UK market closed, the FTSE-100 has fallen this morning and is currently trading down nearly 20 points, or 0.33%.

Investment Management