Equities up by more than 1.5%
Dollar mildly bid
Nikkei 2.12% Dax 1.86%
UST 10Y 0.805
Asia and the EU
North America Open
Global equities staged a massive relief rally in the wake of Joe Biden’s victory for the Presidency of the United States with the MSCI world index hitting record highs.
Stock index futures were higher by more than 1.5% while the dollar was mildly bid with FX generally quiet.
The key market focus was on equities as inventors appeared to be relieved to see a definitive outcome in the US Presidential election which remained uncalled for nearly four days after the votes were cast. With votes in four battleground states now showing a Biden lead of 0.5% or more the media outlets finally projected that he would be able to earn 270 electoral votes needed to win the Presidency.
Mr. Biden’s speech Saturday night which was conciliatory and moderate also reassured investors that he would not a destabilizing force in the markets as he outlined his priorities of combating COVID, reviving the economy, working on social justice, and combating climate change. The energy sector is the most obvious casualty of a Biden win as he is expected to reverse all of the Trump deregulations on the sector, but it’s unclear whether this will have any additional deleterious effect on the industry which is already badly hurt by low energy prices.
Of more interest is the view by some investors that Mr. Biden’s policies may be more tilted towards Main Street vs. Wall Street with greater stimulus funds focused on smaller companies. Some investors are starting to position towards small caps vs. large caps as a result and it will be interesting to see if the Russel which has woefully underperformed the Nasdaq would now reverse that trend.
Although Mr. Biden appears to be a clear winner according to the vote count, Mr. Trump has not conceded the Presidency and over the weekend has consistently refused to accept the results claiming without a shred of evidence that the election was stolen due to fraud. Some advisors continue to press President Trump to pursue legal remedies and moreover to go on a “rally tour” to promulgate this message to his base.
Not only would such action be unprecedented in US history which has always had a smooth transition of power but it could be a recipe for social unrest that could introduce an element of risk that the market does not expect. For now, the President appears to be focused on pursuing legal remedies which are almost universally viewed as being futile but should he decide to take his fight “on the road” the sanguine feeling amongst investors could quickly change.