Market Overview – 03/11/2020

Last week saw equity markets deliver their poorest performance since March. A combination of US election nerves and further lockdowns across Europe due to a sharp rise in Covid-19 infection rates served to reduce risk appetite. Let us look at each in turn.

This US election is expected to show one of the highest voting turnouts in decades. Over 90m eligible citizens have already voted and the total number expected to vote is around 160m. This compares with 136m in 2016. Although in the UK we would normally expect to know the result around 7.30am on Wednesday morning, there is a fair chance that all the votes may not have been counted by then, particularly in the key swing states. Some states such as North Carolina and Florida have already started counting early votes, but others, such as Michigan and Pennsylvania, can’t start counting until polling day. Given the sheer volume of votes, we may have to be patient. What do the markets want? Originally, markets were worried about a Biden victory, particularly in terms of likely higher taxes. However, the prospect of a large fiscal stimulus package largely offsets this. Meanwhile, a Trump win means more of the same, but with a smaller fiscal spending package. A clear victory for either would probably prompt a market rally. The worst outcome would be a contested result, protracted legal wrangling and a delay in a stimulus package.

Groundhog Day for Europe with large scale restrictions and lockdowns once again. This will have a negative impact on economic activity but not of the scale of the full shuttering that took place in April. In most cases factories remain open and with the US and China performing relatively well in economic terms, export demand from Europe should prove more resilient than in the spring.  The leisure and hospitality sectors will be the big casualties again. Not the greatest of segues into year end, unfortunately, but the prospect of an effective vaccine early next year is something to wish for.