9/7/2020 12:00:00 AM

Market Watch Episode 47: Why US election chaos won't crash markets

There really couldn't be much less certainty about US elections.

How will Donald Trump recover from Covid-19?

Will the race tighten as it did in 2016? And wil Trump accept the result if it doesn't go his way?

Already this week we've seen Wall Street rally then slump on the recovery of the President and then his subsequent scuppering of the latest Federal stimulus package.

But for all the noise and chaos of the US campaign trail, stock markets are well braced to handle any outcome, says Pie Funds chief executive Mike Taylor.

"I certainly wouldn't expect to see a market crash. Obviously there'll be intermittent market volatility between now and end of November."

"But underlying this are things which are removed from the Presidential race … the enormous stimulus – both at a fiscal level and Monetary policy level."


                     

As well as that it was also the big shift to online and the digital economies underpinning the giant US tech stocks.

"That's not going away," Taylor said. "It doesn't matter who is in the White House."

The Chicago Board Options Exchange's infamous Volatility Index - sometimes called the Fear Index - has remained relatively stable through the run-up to this election.

In the end, whoever is running the White House would not operate unchecked, Taylor said.

"Even for someone like Trump there are checks and balances."

Traditionally markets tend to favour Republican victories, largely based on policies of lower tax.

"Biden might have a slightly different tax policy and that could take the gloss off the S&P 500 earnings," Taylor said. "I'm not sure that is enough to derail those other factors."

"We've seen equity bull runs under Clinton, under Obama, so I think there are other factors at play."

In New Zealand there seems to be much less uncertainty about the election with polls suggesting a Labour-led government is highly likely.

Whether the Greens are part of the coalition and how much influence they have on policy is one area that could worry business.

But Taylor doesn't see even that having too much impact on local shares.

"Markets don't like uncertainty. But once we actually understand what the situation is - as we've seen with Covid, even if we're uncomfortable with it – then we are able to move on."

"So if we do get a center-left government there might be a little bit of an initial shock for business but then we'll adapt to the new environment – whatever that is," he said.

"If you are an entrepreneur you are still going to be an entrepreneur regardless of whether you have Act or the Greens in Government."

Meanwhile what we are seeing in current market strength was that investors continue to keep their eyes on the longer-term horizon.

"The average is 6-12 months – that's how far they say markets are typically looking out," Taylor said.

"But I think that with Covid in a lot of cases investors are looking out longer and have looked out to 2022 – so 18 months."

Taylor said he was reasonably optimistic about progress being made on vaccines.

There had been a number of positive vaccine results but they had been somewhat overshadowed by US elections.

There were a number in Phase 3 testing - (the final trial phase) that could be looking for US Food and Drug Administration approval through November and December.

"I think there are very good odds of a vaccine being available in the first quarter of 2021," Taylor said.

While there might still be months of logistics and difficulties around deploying the vaccine it would be seen as a big positive for markets.

"A light at the end for the tunnel."

- MarketWatch is produced with support from Pie Funds.

- The Market Watch video series is produced in association with Pie Funds
https://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=12329773

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