2020 US Elections: Uncertainty over the final outcome to weigh on equity markets – HSBC

The latest national opinion polls show Senator Joe Biden maintaining a healthy lead over President Trump. However, fortunes can shift, while polls are difficult to interpret. The outcome of the election poses some potential downside risks to US equity markets, as economists at HSBC notes. Meanwhile, they maintain an overweight view on US equities as the “swoosh” economic recovery remains in play.

Key quotes

“The latest national opinion polls show Senator Joe Biden maintaining a healthy lead over President Trump, although lower than the double-digit gap reached in late June. Biden’s strong polling performance has coincided with a period of high US unemployment as the country grapples with the Covid-19 pandemic and a period of heightened social tensions earlier this summer.”

“A number of factors could materially shift either candidate’s standing in the coming weeks. Positive for Trump would be developments that lead to a faster economic recovery. This may include the potential for the pandemic to subside or further progress to be made with treatments and/or vaccines. Congress passing a new stimulus package that includes an extension to the unemployment insurance top-up will also be considered important. Other factors complicate the picture. There is uncertainty about the impact of increased mail-in voting due to the pandemic. Meanwhile, the US Electoral College system places greater importance on ‘battleground states’ to the final result, making national polls a less useful predictor. In the majority of these states, Biden is forecast to do worse than at the national level.”

“The outcome of the election poses some potential downside risks to US equity markets. These include the possibility of a divided government and “deadlock” over fiscal policy support, while Biden may implement higher corporate taxes. For the time being, we maintain our overweight view on US equities as the “swoosh” economic recovery remains in play.”