Well, the United States election happened.
Predictions of a comfortable Democratic victory for former Vice President Joe Biden were dashed yesterday. As was the credibility of the polling industry, which, once again, stuffed up royally (to put it frankly) in predicting an easy Biden win. The world remains on edge as final counting finishes up today or maybe over the next week or so. On the current numbers, Joe Biden looks to be in a much better position than Republican President, Donald Trump. But (big but), we won’t have a definitive result for a while. Donald Trump is also flagging multiple legal challenges to the results.
Earlier in the week, I wrote about possible outcomes for the US election. I also detailed the best and worst-case scenarios for the ASX and global markets. This was arguably one of the worst. According to reporting in the Australian Financial Review (AFR), we’ve just witnessed a bitterly close contest likely to leave America hopelessly divided for the next 4 years, regardless of who ends up the eventual victor.
The ‘blue wave’ Democrats were hoping for just didn’t materialise. On the current numbers, even if Joe Biden does end up being declared the 46th president of the United States, it looks as though he will have to contend with a Republican majority in the US Senate. That’s despite the fact that his own party looks to have kept its majority in the House of Representatives.
How will the election affect ASX shares?
According to separate reporting in the Sydney Morning Herald (SMH), investors are actually cheering this outcome, as it marks the return of divided government and congressional gridlock.
Although this might not sound conducive to a higher sharemarket, the SMH points out that this situation has “made investors optimistic that major policy changes would be difficult to enact”. That includes changes to President Trump’s signature tax reforms. These saw both corporate and personal income taxes slashed across the board, which Joe Biden had been promising to repeal a large chunk of.
However, the reporting also notes that demand for ‘safe haven’ assets like government bonds have spiked amid the uncertainty. Gold and silver (other ‘safe’ assets) have also appreciated in price overnight. It also notes that “…still, investors said they favour a definitive, swift resolution of the presidential race that would clear the way for a deal on a stimulus package to revive the economy”.
If this doesn’t come to pass, who knows what will follow.