Investors are highly cautious as we approach the US presidential elections. This is the last and final push for both candidates: Joe Biden and President Donald Trump.
Usually, the presidential election uncertainty is over after the election night. However, this particular situation is completely different as we are in the middle of an unprecedented pandemic.
This time, the outcome of the election could easily be delayed by days or even weeks. The highly likely scenario is that a long night could end up going into days and weeks and market participants are certainly not ready for this.
That’s because Americans have been voting early by a large margin as compared to the previous occasions, and this has created complications.
States with a head start are likely to project the winner much earlier, and markets will react to that, and then the entire situation can take a complete U-turn when other states show a different winner.
The biggest risk is that in some of the states, we could have a close election, and that could trigger court battles over the validity of some of the votes.
The court battles over electoral votes could delay the election results even more, and the uncertainty that could arise between that time period is likely to hunt the stock markets.
One of the biggest fears for investors and traders is civil unrest. We have seen several episodes of these previously; for instance, the country went under a major turmoil due to the death of George Floyd.
Businesses are boarding up due to the fear of civil unrest. Companies like Macy’s have put all the protective measures in place by boarding up their windows. If civil unrest breaks out, a highly likely scenario if Trump losses the election, civil unrest, looting, and several other similar activities can continue for an unknown period of time.
This unknown uncertainty is making investors cautious. Under those circumstances, the potential damage is going to adversely influence economic growth and the current coronavirus situation.
In terms of today’s market price action, anxious and concerned are the two keywords that are on everyone’s mind. Volatility in the markets is likely to remain immensely high, and there will be no surprise if we see unprecedented moves in the next 48 hours or so.
One factor that is quite clear is that the outcome of the upcoming presidential elections will change portfolio allocations. Basically, investors will alter their stock portfolios depending on the outcome of the election.
Conventional wisdom will say that it is likely that business will flourish, at least in the short term, if Trump comes back for another 4-years. Under that scenario, we may not see too much of a difference in portfolio allocation. However, if Biden becomes the US president, we could see a significant change in portfolio allocations.