Blackfinch Group

Investment specialists working towards a more sustainable future

Blackfinch Group
Blackfinch Group

As the US election draws to a close, Blackfinch Asset Management provides an update on the imminent result and its impact on the portfolios.

CONTINUED MONITORING OF THE PORTFOLIOS

At Blackfinch Asset Management, we did not play politics with the portfolios and stuck closely with our strategic asset allocation. Tactical overlays were driven by our views of global markets, without placing a “bet” on who would win the White House. As such, the portfolios are robust enough to benefit from either a Trump or Biden victory. Clearly from the polls, it’s extremely difficult to predict outcomes of such huge events, and furthermore the reaction of global markets when outcomes become more certain.

The United States is a large, diverse and wealthy nation, and our asset allocations to the market reflect this. However, our tactical positioning is under continuous review. We will endeavour to update you on portfolio activity as the political backdrop evolves. As it stands, we do not envisage any changes to the portfolios under a Biden presidency and the portfolios are well positioned in this regard.

THE PRESIDENTIAL RESULT

The presidential election dust is settling in the United States and it points to there being a new president in the White House. Yet, over 24 hours on, this is by no means guaranteed. What we do know, at the very least, is that the polls predicting a landslide victory for Biden were wrong, and it was a much more closely fought election than they made out. Question marks will remain as to how much the polls can be relied upon in such crucial events like a presidential election when all is said and done.

As it stands on the morning of 5th November, Biden has gathered 264 electoral votes out of the required 270 needed for a majority victory. He is ahead in Nevada as votes continue to be counted, a state that would provide the remaining six electoral college votes to win the presidency. Biden won critical states in Arizona, Wisconsin and Michigan, states that Hillary Clinton failed to win in 2016 and which then, ultimately, created a path for Trump to take office in the White House. Trump, this time round, has already gained more votes than he did in total in 2016, boosted by a greater turn out, and retained key battleground states in Florida and Texas. Trump could take all remaining states outside of Nevada and the United States will still have a new president in Joe Biden.

It is doubtful that events will be smooth sailing from this point, with Trump already threatening to challenge the result in the Supreme Court. This could lead to weeks of political wrangling as the election is extended into a rare legal battle. Any stimulus bill to cushion the longstanding effects of the ongoing pandemic would likely be pushed out to 2021 as Congress deals with the ramifications of a challenge on the presidency.

MARKET OUTLOOK

Markets, at least in the short-term, are ignoring the risks of a delayed stimulus package and a potentially uncertain political backdrop as the Republicans look set to retain control of the Senate. A Senate controlled by the Republicans with a Democratic president would quash any “Blue Wave” trade whereby a shift towards fiscal over that of monetary policy would lead to much higher government spending, higher yields and a return of outperformance from cyclical sectors. A Republican-controlled Senate also reduces the likelihood of increased regulation and anti-trust challenges of the Big Tech companies such as Google, Facebook and Amazon.

Equities rallied yesterday, particularly the tech-heavy NASDAQ, while long Treasury yields fell dramatically as a rotation out of the Blue Wave trade developed when a Biden/Republican combination in the White House and Senate looked likely. Although uncertainty remains, this political combination in the White House and the Senate continues to be the greatest likelihood of outcomes from the election. The political rhetoric from the campaign trail should be dialled down now, resulting in a more centrist presidential administration than there perhaps otherwise would have been if the Democrats gained control of the Senate. Biden may reverse many of the executive orders issued by Trump during his four years in office, but overturning legislation with a Republican Senate will be much more challenging. Political gridlock would ensue, and that should be good for markets and volatility.