Amidst uncertainty in US Presidential election results, markets are bracing for volatility that could last for days or weeks. Though no winner can yet be determined in the race for the Presidency, we are focusing on the market trends that will materialzie no matter who the ultimate victor is. In particular, MRP is assessing the size of the next round of stimulus, easy monetary policy, inflation, and its effect on the US Dollar. Inflation proof safe-haven assets like precious metals could also see a bump if a new round of stimulus kicks the recovery into high gear.
Related ETFs: Invesco DB US Dollar Index Bullish Fund (UUP), iShares Silver Trust (SLV), Global X Silver Miners ETF (SIL)
In our 2020 Election Preview, MRP noted that investors’ ultimate fear was no clear and immediate result. We also wrote that it was an increasingly likely outcome as polling narrowed and alternative data showed the race was much closer than expected in many swing states.
Unfortunately, that worst-case scenario appears to be playing out before our eyes. As of this morning, there is no clear winner of the 2020 Presidential election and the fates of several swing states are up in the air. Although President Trump appears to be maintaining thin leads in most of the states still on the board, a significant amount votes across the nation remain uncounted. It’s anyone’s race for now and Joe Biden is right on the precipice of flipping the entire election map on its head.
Volatility is likely to envelop markets until we can get a straight answer regarding who will be President come January 20, 2021. Whether or not Trump holds onto his extremely narrow advantage, these results are going to court and the President said as much in an address to his supporters early Wednesday morning:
“We’ll be going to the U.S. Supreme Court,” Trump said. “We want all voting to stop. We don’t want them to find any ballots at 4:00 in the morning and add them to the list… As far as I’m concerned, we already have won it”.
Though the actual results of the race should become more clear within an indeterminant number of hours, days, or weeks, we can say we were ahead of the curve in highlighting one important figure who will remain a fixture in DC, no matter what the result of the election is:
Fed Chairman Jerome Powell.
Powell’s term of office lasts until 2022 and he has ushered in an era of ultra-low rates and virtually limitless QE that awaits whichever President-elect takes the reigns of the executive branch. Powell said as much in May, telling the Senate Banking Committee that there was “no limit to what [the Fed] can do with these lending programs that we have”.
For his part, a half-baked round of stimulus is still probably worse than too much. Earlier this month, the Chairman noted that “too little support” for the recovery would bring “unnecessary hardship”. “By contrast, the risks of overdoing it seem, for now, to be smaller,” he added.
In the days leading up to the election, several publications, including Barron’s and CNBC, echoed the same perspective on Powell and the Fed:
Speaking to CNBC, Andrew Slimmon, senior portfolio manager at Morgan Stanley Investment Management, noted that investors should be watching what calls an “excellent” landscape following the election, one set up by an accommodative Federal Reserve that still will be driving market returns until conditions change. Slimmon added that it has been the central bank’s approach to interest rates and other aspects of monetary policy that have helped or hindered the market, beyond the politics of whichever candidate gets elected…