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US election: Trump trailing behind

Donald Trump returned to the White House last week. As expected, the US President is trying to regain control of the election campaign with a flurry of statements designed to sway undecided voters. The markets, however, are already anticipating who will win.

US President Donald Trump is back in the Oval Office just six days after the announcement that he had contracted COVID-19. According to his doctor Sean Conley, he feels “great”. Trump is continuing with his treatment – and the election campaign – at the White House. He was trailing Joe Biden in the polls even before he caught coronavirus, and he has fallen even further behind since his illness was announced.

Military, FBI and coronavirus

The US President is now trying to shift attention from his mismanagement of the coronavirus crisis with a whole host of measures unveiled in a series of tweets. For example, he unexpectedly announced the early withdrawal of all troops from Afghanistan, saying that he wants to pull them out of the war zone by the end of the year. He also mentioned that US$ 2.5 trillion had been spent on the army and soldiers’ families during his time in office. Another announcement was the declassification of FBI documents, including those relating to the email scandal involving Hillary Clinton.

Trump is also attempting to create political capital from his illness, describing it as a “blessing from God” in a video. More than 210,000 people have now died from coronavirus in the US. The President also promised US citizens that the drug REGN-COV2 from US pharmaceutical company Regeneron, which he took as part of his treatment, would be made available to all Americans free of charge. The medication is currently being studied in a phase 3 clinical trial and has not yet been approved. Regeneron’s share price went up after Trump’s statement.

Barrett’s appointment still not definite

According to US media, at least 34 of Trump’s close associates have now tested positive for coronavirus. Some of these are among the Republican senators who, along with Trump and his staff, attended an event in the White House’s Rose Garden to celebrate the nomination of conservative judge Amy Coney Barrett for the Supreme Court, which was held before Trump’s illness was made public. If a number of senators are out of action in the coming weeks because they are quarantined or seriously ill with COVID-19, the candidate’s nomination may potentially not be confirmed before the election. Barrett’s appointment first has to go to the Judiciary Committee, before the entire US Senate then votes on it. However, the Republicans only have a slim majority with 53 of the 100 seats.

Economic stimulus package delayed until after the election

The US President has also ended negotiations with the Democrats about further economic stimulus. He wants to delay negotiating a new coronavirus support package until after he has won the election. Just hours earlier, the Fed Chair Jerome Powell had recommended that the government introduce further economic stimulus in view of the hesitant and frail recovery of the US economy. After stopping the negotiations, however, Trump indicated his willingness to sign part of the agreements, including a US$ 25 billion bailout for US airlines.

Dwindling uncertainty in the markets

The US stock markets initially responded to this news by falling, but then quickly bounced back. The price volatility, at times pronounced, in the capital markets showed the uncertainty that had been circling about the possible outcome of the election.

Overall, it is clear that Trump’s many tweets have not really helped him so far. In fact, his standing in the polls has deteriorated further in recent days. Investors are therefore starting to position themselves in readiness for a Joe Biden presidency. This can be seen from the performance of the Russell 2000 index, which has deviated from its usual pattern in the run-up to a US election. Interestingly, the index has moved similarly only once since 1992, when the Democratic challenger Bill Clinton won against the incumbent George Bush Sr. That was also the last time that a president had to leave the White House after just one term of office.

Initial uncertainty is dwindling

Performance of the Russell 2000 in the last 60 trading days before the election

Initial uncertainty is dwindling
Source: Bloomberg, as at 8 October 2020.

Although Biden’s manifesto deals a few blows to US companies, for example higher taxes, the markets appear to be happy with the aspects of the manifesto aimed at growth. Biden’s plans include an innovation-focused investment package of US$ 2.4 trillion that should benefit fast-growing sectors. The relationship between the US and China should also improve a little. That will also please the equity markets.


As at 8 October 2020