See what I did there? I worked the word “Trumps” into the title in a blog about American politics. Cute, huh? For years, the prevailing wisdom has been that markets hate uncertainty. Now, as I write this, it has been nearly 48 hours since polls closed in the U.S. and we still don’t have a declared victor for President. Even when that happens, a series of protracted court challenges loom large. It may be months before anyone can say with certainty who won on November 3rd. Meanwhile, with political pandemonium and hand-wringing as a backdrop, a global pandemic picks up steam. The expected response from capital markets was supposed to be one where they collectively recoil in horror and plunge dramatically due to widespread uncertainty.
Naturally, that’s about as far as possible from what actually happened. It seems a new narrative is taking hold in the U.S. In the ‘down ballot’ races for the House and the Senate, results were surprisingly unexpected – and the offshoot of that was perhaps even more unexpected still. Prior to the vote, many pollsters were giving the Democrats about a 75% chance of winning a majority in the Senate to go along with their majority in the House of Representatives. This, combined with an even greater likelihood of a Biden Presidency, meant that the odds were high that, for the first time in more than a generation, one party might control the House, Senate and Presidency simultaneously, thereby breaking the legislative gridlock that many had bemoaned as the primary culprit for so little getting done in Washington.
When pressed for a reason why markets shot up on Election Day and the days after, most pundits opined that markets like the fact that Biden will be precluded from taxing and spending like a drunken sailor, even though there was little real evidence of that in his platform. The longstanding narrative to explain capital market behaviour has long been that markets dislike uncertainty. It now seems that there is something that markets dislike even more: a clear, unfettered mandate for a Democratic President to pursue his agenda without the traditional checks and balances of legislative gridlock. Who knew?