How the ASX is responding to the US Election
The US market rally has been led in the last few days and overnight by technology and healthcare, not because of Trump or Biden, but because there is no clear Senate control which means no major reforms which could hurt both sectors.
In which case we are unlikely to take a lead from the US market rise over the last few days, because it is not terribly relevant to our market.
The sentiment will presumably wash positively over our technology and healthcare stocks (less Medicare). We have large holdings in healthcare and some technology holdings so it suits our settings.
The other major issue appears to be the unlikelihood of a quick, $5 trillion stimulus bill which might have happened if the Democrats had taken the White House and the Senate, although the sticking point there might not be politics but Trump, in which case it might still happen. The waning chances of a quick larger stimulus bill have upset the financial sector in the US and again that might wash over our financials, although they are not connected. We don’t hold banks so happy with that.
The other influence is bond yields. Biden and the Democrats, if they get in, are likely to take the virus more seriously which, despite the prospects of a vaccine, will possibly involve measures that will dent economic growth prospects in the US in the short term as they attempt to contain the exponential growth they are seeing at the moment. That should lead to lower bond yields.
You might notice bond yields rallied as Trump looked like winning and fell as Biden looks like winning. Measures to contain the virus in the US, if they bother, is not good for the equity market generally but could be quickly rescued by vaccine hopes.
Relevance to the stock market
The newswires suggesting that the market would be happy with either Trump or Biden but not a long drawn out legal challenge which delays spending decisions by businesses and can hurt growth in an extended “lame duck” period without political certainty.
The market is more interested in the lack of a clear Senate majority for either side which stops any party pushing through reforms in healthcare (sector up 4.69% in the US) and neuter anti-trust cases against Big Tech companies (technology sector up 4.35% in the US).
The S&P 500 had the best session since June and the NASDAQ had the best session since April. Financials fell on the night (less chance of a larger stimulus bill) as did resources and utilities.
Takeaway
There is much to unfold, so let's not draw any premature (stupid) conclusions just yet. Based on what we know now, the key takeaways appear to be:
- No major market impact for the moment.
- Negative market risk if the result is contested in court and long drawn out.
- Good for technology and healthcare sentiment in the short term.
- Bad for financial sector sentiment in the short term.
- Risk of a Biden win leading to economic downgrades (lower bond yields).
- No need to reset/change portfolio settings for the moment.
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