Nov 5, 2020

DealBook: The Markets Like What They See in the Election Results So Far

 Investors have already made up their minds about the potential outcome.

Andrew Ross Sorkin, Jason Karaian, Michael J. de la Merced, Lauren Hirsch and Ephrat Livni


Credit...Courtney Crow/New York Stock Exchange, via Associated Press

The U.S. presidential election hasn’t been decided yet, but investors have already made up their mind: buy stocks. S&P 500 futures are up nearly 2 percent this morning, after the index jumped 2.2 percent yesterday. Big winners include health care, technology and private equity companies.

Investors like the idea of divided government. The prospect of a Democratic president and Republican Senate, and therefore political gridlock, appeals to Wall Street. Investors are betting that higher taxes and regulatory crackdowns on health care and tech companies are unlikely, and that Joe Biden would run a more moderate, predictable administration on other policies. “It’s kind of the best of both worlds,” said Mike Novogratz, a former hedge fund manager who supports Biden. “Generally speaking, a good outcome for business,” said Willy Walker, the C.E.O. of Walker & Dunlop, a commercial real estate company.

  • Major economic stimulus — a great hope of “blue wave” forecasts — isn’t necessarily off the table. Senator Mitch McConnell, the majority leader, said it was his top priority when the chamber resumes business, although it’s unlikely to reach the $3 trillion that Democrats hoped for. (Shares in industrial companies were among the losers in the rally as hopes for big infrastructure spending dimmed.)

But markets are unlikely to tolerate much more uncertainty. If the election is decided within a week, investors can sit tight, according to analysts and bankers. But the prospect of major unrest or a significant challenge to the results (more on that below) could end the rally. “My number one concern, which I think is a very real concern, is anarchy,” said Scott Minerd, the global chief investment officer at Guggenheim Investments.

Meanwhile, C.E.O.s counseled patience. “Once a final outcome is determined, together we must move forward to address our nation’s challenges,” Jamie Dimon of JPMorgan Chase wrote in a note to employees. Tim Ryan of PwC told his staff, “My ask is that we do our best to pull together as a team and stay focused on these as the election results continue to come in.”

Ant Group’s I.P.O. may be on hold for six months. The Chinese financial giant is reportedly acknowledging that its stock market debut in Shanghai and Hong Kong may be delayed significantly, The Financial Times reports. It valuation may also be cut after regulators halted the blockbuster offering, which was scheduled for today.

Fox News and President Trump are more at odds than ever. The TV network’s calling Arizona for Joe Biden before other news outlets did enraged the Trump campaign, according to The Times. It’s a reminder of the complicated relationship that Fox News has with the president — and the network’s readiness to operate in a post-Trump era.

The latest on key ballot initiatives. Californians approved Proposition 24, creating a state watchdog for internet privacy to strengthen an existing law that gives people more control over their digital data. Voters in Illinois rejected a new tax on high earners, but Arizonans appear close to approving a proposition that would raise taxes on those earning more than $250,000, but that hasn’t yet been called.

The U.S. officially leaves the Paris climate accord. Mr. Trump’s move to withdraw from the agreement became official yesterday. Mr. Biden has pledged to bring America back into the agreement if he is elected.

Wall Street sizes up the market for Covid-19 vaccines. Analysts at Morgan Stanley estimate that sales of the treatments could surpass $10 billion a year in developed countries, while number crunchers at Credit Suisse think they could top $10 billion in the U.S. alone (they believe shots would be needed every year, as flu vaccines are).

Keeping up with the court cases

The Trump campaign has filed a series of lawsuits that reflect the president’s determination to “make good on his longstanding threats to carry out an aggressive post-Election Day campaign to upend any result not in his favor,” write The Times’s Jim Rutenberg and Nick Corasaniti. Here is the latest on these legal efforts:

  • In Pennsylvania, a case that the state’s Republican Party filed before the election, taking issue with a ballot-counting extension, is back at the Supreme Court. The court has already declined the appeal twice, but some justices signaled that they would reconsider if it’s an issue after Election Day. Mr. Trump yesterday asked to intervene in the case and urged review under a “shortened schedule.” His campaign also filed a new case in the state about access for poll watchers and other procedural matters.

  • In Michigan and Nevada, the Trump campaign is trying to halt statewide vote counting on the grounds that election observers do not have sufficient access to monitor the process in the Detroit and Las Vegas areas.

  • A lawsuit filed in Georgia claims that 53 late-arriving absentee ballots were counted along with those received by the deadline in one county.

  • The Trump campaign will request an “immediate” recount in Wisconsin, which is allowed under state law if the gap between the candidates is less than 1 percent (it is currently an estimated 0.6 percent, or about 20,000 votes).

Mr. Trump has also floated the idea of a “national lawsuit” challenging alleged voter fraud, though there appears to be no legal theory or evidence to support it. Regardless, there are several scenarios in which election challenges leave the contest up in the air into 2021.

It’s common practice for market analysts, economists and other strategists to incorporate opinion polls into their models and forecasts. Although the pre-election polls pointed to a win for Joe Biden, which may prove correct, the underlying details were way off and the margin between the two candidates much narrower than expected. On top of widespread polling errors in 2016, financial forecasters are rethinking how much faith to place in polls when making assumptions about elections.

“Sympathy is wearing awfully thin with regard to U.S. pollsters who have now been unacceptably far from the market two straight elections,” said Eric Lascelles, the chief economist at RBC Global Asset Management. “I’m not quite sure what we’re going to do if we literally cannot trust pollsters to be within eight points of the correct answer.”

Is there a better way? The polling industry faces existential questions about its powers of prediction, its understanding of the electorate and the notion that people might not reveal their true intentions when contacted by pollsters. In the meantime, strategists like Ben Laidler, the head of Tower Hudson, an investment research firm, said he would take polls “with a bigger pinch of salt” in the future. He noted that political betting markets were less sure about Mr. Biden’s chances than opinion polls. Others say that indicators like Google searches and counting signs in yards could take more prominence in election models.

  • Regardless, polls will remain a useful guide to the market consensus — however misguided — and “we take our own views against it” when devising trading strategies, Mr. Laidler said.

The Bank of England announced a new round of government bond purchases to keep interest rates low, bolstering the British economy as the England enters a second lockdown.

The central bank plans to buy £150 billion ($195 billion) in bonds next year, more than expected. That would put its total stock to £875 billion. Separately, Britain’s financial minister, Rishi Sunak, is expected to unveil more economic support for the country today.

England is preparing for a big hit to its economy. Starting today, restaurants, pubs and nonessential shops must shut down until Dec. 2 in an effort to curb rising coronavirus cases.

  • That may have been on the mind of Bank of England policymakers, who revised their forecasts to show a 2 percent drop in G.D.P. in the fourth quarter, compared with a previous projection of growth. They now think Britain’s economy won’t reach pre-pandemic levels until 2022.


  • Sinclair Broadcast Group wrote down the value of its regional sports networks — which it bought from 21st Century Fox for $8.6 billion last year — by $4.2 billion. (Bloomberg)

  • Aphria, the Canada-based cannabis producer, agreed to buy the beer brewer SweetWater for $300 million. (Reuters)

  • The founding family of Clarks, the British shoemaker known for its desert boots and Wallabees, will sell a majority stake to the Hong Kong-based LionRock Capital for £100 million ($130 million). (FT)

Politics and policy

  • Mike Bloomberg spent $100 million on pro-Biden ads in Florida, Ohio and Texas ahead of the election — to no avail. (CNBC)

  • The Trump administration named Betsy Weatherhead, a veteran scientist who believes climate change is a threat, as the head of the government’s next National Climate Assessment report. (WaPo)

  • The Commerce Department imposed tariffs of up to 10 percent on Vietnam, accusing the country of undervaluing its currency to boost exports to the U.S. (NYT)


  • Inside the three-day period that led Chinese regulators to suspend Ant Group’s record-breaking I.P.O. (Bloomberg)

  • “Uber Won Its Prized Contractor Status for Drivers. Now What?” (Bloomberg)

Best of the rest

  • The Gap tweeted about a half-blue, half-red hoodie in a plea for political unity. It didn’t go over well. (NYT)

  • The creator of the Rubik’s Cube opens up on what he learned from inventing the popular puzzle. (NYT)


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