Investors full of optimism

Election Day has finally arrived and investors are in no way put off at the prospect of the volatility surges you would expect will accompany it.

European equities show strong gains

Investors would be forgiven for taking to the sidelines on a day like this but what we’re seeing is far from it. Europe is making strong gains for a second day, with France’s CAC and Italy’s FTSE MIB leading the way up more than 2% and taking huge chunks out of last week’s losses. US futures are seeing similar gains and setting us up for a strong open on Wall Street shortly.

So why the positivity when there’s so much event risk this week, including potentially the most controversial presidential election in decades. Well, I think trading over the last few weeks has a lot to do with it. The Dow fell 6% last week and the two weeks that preceded it weren’t particularly good either. It seems the positioning ahead of the election has already been very risk averse, heavily aided by Covid lockdowns.

So perhaps some investors are sensing opportunity ahead of the polls closing. Naturally, it helps when one candidate has a hefty lead in the polls which reduces the possibility that the result will be contested. This could bring considerable uncertainty in the coming weeks, and at the worst possible time.

The polls certainly seem to indicate that the race for the White House is almost a foregone conclusion. But if I’ve learned anything about Trump, it’s that he won’t take defeat lightly and he can’t be counted out. I fear it may not be as straightforward as the markets seem to suggest.

And that’s before we question whether markets are as comfortable with Biden as they’ve appeared and we’ve all tried to justify. Four years ago, the markets appeared to perceive Trump as a threat and the consensus leading up to the election was that he would hold them back. And we all know what happened next. Could the inverse be true this week?

What looks certain is that it’s going to be a wild couple of days, made all the more complicated by the huge numbers of postal voting for obvious reasons. With around 100 million people having already voted, turnout is looking to be huge and we may have to wait a little longer for results.

Exit polls may give us some early insight but how reliable will that be? Now more than ever, collecting that data because of early in-person and postal voting must be a nightmare. Will markets react to early exit polls? If so, this will only add to the volatility as the final results may look very different.

And to think, this is only one of this week’s major risk events, albeit certainly the most important. The Fed and BoE on Thursday will naturally be huge given the role central banks have to play in the final weeks of the year. And Friday’s jobs report has almost fallen off the radar. Not to mention Covid, which is forcing Europe back into lockdown and onto the brink of a double-dip recession. The race to save Christmas is on.

For a look at all of today’s economic events, check out our economic calendar. www.marketpulse.com/economic-events/

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