Election days away and COVID impacts markets

Investors should be expecting and preparing for significant market volatility in the event of a disputed outcome of the US presidential election, warns the CEO of one of the world’s largest independent financial advisory and fintech organisations.

The warning from Nigel Green, the chief executive and founder of deVere Group, which has $12BN under advisement, comes as President Donald Trump and his Democratic White House rival Joe Biden both hold rallies in the critical election state of Florida.

Biden maintains a substantial lead over Trump nationwide, according to most polls.

Mr Green says: “Biden is leading in the polls and the markets have already priced-in victory for the Democrats.

“This is demonstrated by investors in recent weeks piling into renewables, industrials and other sectors that could benefit from a Joe Biden administration.

“However, history has taught us not to underestimate Trump. More than 81 million people may have already voted ahead of election day on 3 November, but these voters are more likely to be Democrats and Republicans.

“Indeed, Trump has urged supporters to wait and vote on the day itself due to alleged concerns on mail-in voting.

“As such, we could see an important shift in numbers, with Trump making gains on Biden.”

He continues: “Trump has repeatedly signalled he could contest the election outcome if it is unfavourable to him.

“Should Trump reject the result it would lead to a long-winded post-election struggle in the courts – and on the streets – that could last for months.

“This major political uncertainty in the world’s largest economy would generate significant market volatility across the globe.”

Investors should now be expecting and preparing for this possible scenario, according to the deVere CEO.

“Volatility is not always a bad thing – in fact, it can be useful to investors. They should now be asking themselves: ‘Is my portfolio best-positioned to mitigate the potential risks but to seize the opportunities?’”

He goes on to add: “Markets loathe uncertainty, so in the event of a contested result, safe-haven assets will get a boost – especially non-sovereign classes such as gold and Bitcoin.”

Mr Green concludes: “The uneasy reality is that the political stalemate in the U.S. could continue into 2021.

“Should this happen, the markets will reflect the chaos and remain meaningfully turbulent.

“As ever, to grow and protect their wealth, investors are urged to remain in the market and ensure adequate portfolio diversification in order to take advantage of the opportunities that will inevitably be presented.”

COVID cases affecting market

Joshua Mahony, IG Markets Senior Market Analyst discusses COVID cases rising globally.

“A surge in Q3 GDP in the eurozone has done little to lift stocks, with a continued rise in Covid cases globally ensuring that risks remain as we headed into the weekend.

“European markets drifted lower as we ended the week, with stocks remaining under pressure after global daily coronavirus cases hit a record high after breaching the 500,000 threshold.

“While much of the selling pressure seen last week was focused on mainland European indices such as the DAX, the futures markets point towards a US-led sell-off today as new coronavirus cases in the country topped 91,000 with just days left until the election.

“From a US-perspective, the prospect of a dramatic rise in Covid-cases should bolster Biden’s election prospects. However, with Biden seemingly more willing to lock down the US in a bid to control the virus, a victory for the Democrat leader could see markets tumble as the prospect of a nationwide lockdown overshadows stimulus optimism.

“Friday's declines came despite outperformance across a host of major US tech earnings the previous night, with Alphabet, Amazon, Apple and Facebook all beating market sales estimates.

“Interestingly, those tech stocks also followed the wider market sentiment in moving lower. Unfortunately, the tech sector remains the area where traders need not worry, with the premise of another phase of lockdowns bringing significant fear over just how damaging a second wave of closures will be to businesses.

“While the US and UK continue to hold off on a second nationwide lockdown, the feeling is that the longer you delay, the longer any lockdown will last.

“Eurozone growth data for the third quarter have impressed today, with Spanish, German, French, and eurozone readings all coming in above market estimates.

“However, it comes as no surprise to see markets fail to post a proportionate rally, with fears of a double-dip recession continuing to stifle short-term achievements.

“Much like the whopping 33.1% US GDP reading, the eurozone growth figure of 12.7% produced almost no reaction for stocks, with traders firmly focused on the here-and-now.”

Tickers

Dow: -0.59%

S&P 500: -1.21%

Nasdaq: -2.45%

FTSE 100: -0.08%

DAX: -0.36%

CAC 40: +0.54%

Asia Dow: -1.56%

Nikkei 225: -1.52%

Hang Seng: -1.95%