Biden's lead within the survey will increase market fears that the economic system must wait till subsequent 12 months for impulses
U.S. Democratic presidential candidate and former Vice President Joe Biden speaks during a campaign stop in Warm Springs, Georgia, the United States, on Oct. 27, 2020.
Brian Snyder | Reuters
With some market participants feeling they have a better view of who will win the presidential race, it actually throws another level of uncertainty into stocks.
National polls show former Vice President Joe Biden has a 7 point lead over President Donald Trump, an advantage that has remained pretty constant through October. At the same time, the prediction markets are giving Biden a 63% chance of winning, a number that was also held throughout the month.
The possibility of a Biden victory complicates something that the markets have given high priority, namely getting a stimulus bill from Congress sooner rather than later.
If Trump loses, he would have less incentive to push through a large spending package during the Lame Duck phase. And that could jolt the economy and the market well into January.
While a Biden win would likely lead to an even bigger stimulus package in the end, that is not enough to calm the market's nerves right now.
"We were just having seizures and beginnings when Lucy pulled that football away," said Art Hogan, chief marketing strategist at National Holdings. "Sure, the market is there now. The door has been slammed. At best, we see something during the lame duck [congressional session], but the market will not start pricing anything until January."
Two months doesn't usually seem like that long, but with Covid-19 cases raging around the world and skyrocketing in the US, time is becoming the enemy of the market.
Many small businesses report that their cash supplies are rapidly dwindling. Tens of thousands are projected to work out without Washington needing any help in the next six months. January stimulus might help, but economists worry about economic scars that could emerge if Congress remains stalled.
"You just got a cauldron with a nasty headwind," said Hogan.
That said, most Wall Street strategists believe that the worrying trend in coronavirus cases is currently more of a market concern than political impact. However, the two are intertwined: the more severe the spread of the virus becomes, the more economic restrictions will be put in place.
This, in turn, is putting economic pressure on and frightening investors who aggressively dumped stocks on Wednesday and negated key October averages.
"It plays a very important role for investors," said Mitchell Goldberg, president of ClientFirst Strategy. "If Trump loses the election, he will not be as motivated to adopt an incentive that the next administration would appreciate. We could see a 5 to 10% correction in the market if we don't get an incentive before the next. " Administration comes in. But I think it would be limited to that. "
However, there is a lot of calculation to deal with the exact implications in the marketplace.
For one thing, Biden is far from winning the election. Trump also trailed Hillary Clinton badly in the days leading up to the 2016 election, despite Biden being 5.2 percentage points away from former Secretary of State in the previous race, according to RealClearPolitics.
There is also the balance of power in Congress to consider.
The Democrats are almost a breeze to hold the house, but the 53-47 GOP balance in the Senate is clearly at play.
At this point, polls suggest Republicans keep 46 seats, Democrats 45 and nine in balance, according to RCP's poll. If the Democrats who are at the top made mistakes, they would get the Democrats under control 51-49, even though half of those races are within the range of voting errors.
"Even if there is a final winner with the presidency, what about the Senate races?" said Doug Roberts, executive director at Channel Capital Research. Investors "want some kind of clarity. There's a bit of uncertainty about a blue wave. What they really want is an incentive."
The double blow of rising infections and irritation uncertainty could "potentially lead to a minor correction, although it could be a larger one," added Roberts. "It doesn't necessarily mean you're going to have a bear market, but you could have a pretty sharp correction that bounces around a bit until you see what's going on."
Investment professionals believe the current decline will ultimately lead to a new buying opportunity once a stimulus measure is passed, although it could be a tough ride until then.
"It's more of a combination of three things," said Michael Yoshikami, founder of Destination Wealth Management. "It's uncertainty, it's not an incentive, and it's an excess of optimism about Covid. If any of these three things didn't exist, you probably wouldn't see the downturn you are seeing now."
Correction: In a previous version, the Republican advantage was incorrectly stated in the Senate.