07.09.2020 – Special Report. Labor Day in the USA – only now are Americans traditionally concentrating on the presidential election. The ballot is likely to be one of the most important decisions since the re-election of Abraham Lincoln in 1864 in the middle of the war of recession. De facto, a new civil war is possible. With devastating consequences for the financial market. We examine the possible scenarios.
Overloading of the US Postal Service
The election is made explosive by the mass postal vote – in this case the late arrival of ballots can be expected. The Democrats have had bad experiences in their own primaries in New York and Ohio. The team around ex-candidate Mike Bloomberg did not think that maybe Donald Trump would win on election night – but would lose in the days and weeks after the election due to the results of the postal vote. In fact, according to a survey by USA Today/Suffolk University, 47 percent of the Democrats want to vote by mail – compared to only 21 percent of the Reps. In contrast, 56 percent of Republicans want to vote in the booth on election day, but only 26 percent of Democrats. And, of course, the possibility of electoral fraud is on the table.
The shaking already starts
If the outcome of the election is unclear, it will be uncomfortable on the stock market. Blueprint for what might come is the year 2000: Five weeks the election outcome between George W. Bush and Al Gore hung in the air because of the close decision in Florida. Only when the Supreme Court prohibited a recount did Gore give up – from election day to December 20, the S&P 500 lost a whopping 12 percent, as RBC Capital Markets recalled.
In fact, the most important indicator of all points to a no-win scenario. Until last week, the S&P 500 showed a clear victory for Donald Trump. The index has been right nine times since 1984, as broker LPL Financial reported: In the three months leading up to the election, rising prices pointed to a victory for the incumbent, losses to a triumph for the challenger. So the deadline would be August 3. Since the recent sell-off, however, the index is dangerously approaching the loss zone. And Andrew DeFeo, head of Optimize Advisors, in an interview with Fox News, pointed out the increasing volatility in options on the S&P for December and January. So let’s take a look at what could happen.
Scenario 1: Slight Biden bear market
Clear victory for Joe Biden, quick result: Wall Street is likely to go down in the breadth. Because new taxes, open borders including free health care for all threaten. But Big Tech is likely to benefit, since Facebook, Twitter, Goole and Amazon have openly supported the Dems. Ditto, stocks from the environmental sector are likely to pick up. In contrast, oil and energy stocks in particular are likely to go down hard – Joe Biden has wobbled back and forth here, but his deputy Kamala Harris has clearly spoken out against fracking and in favor of a Green New Deal.
Szenario 2: Massiver Harris-Crash
Clear victory by Joe Biden, quick result – but Biden resigns shortly after the election and is replaced by Kamala Harris: Harris may be the darling of the media and the cultural chic in Hollywood. But she has nothing in common with the average American.
Since she announced a restriction on the possession of weapons by presidential decree when she sits in the White House, she could trigger the uprising. Harris had rallied behind the left-wing demonstrators in the cities ruled by incompetent Democrats and called for “Defund the Police. A fund supported by her also provided bail for troublemakers who got out of prison again and immediately committed serious crimes. If Harris took office, people would have less police, more violence, a cuddle course with revolting left-wing radicals and would have difficulty getting weapons to defend themselves. The Americans will not put up with this. The result would be a total crash of the indices.
Szenario 3: Total Chaos
Even worse would be a month-long election chaos in the USA: Massive postal vote including recount in scarce Swing States. Plus endless lawsuits for election fraud. Conservative media like “The American Mind” are already speculating about a coup by the establishment – the coup had started with the demonstrations in May. USAWatchdog quoted a former CIA agent as saying the violence on the streets had only just begun. The question is who is financing all this – many provocateurs are roaming the country.
One thing is clear: if there is no result by Inauguration Day on January 20, 2021, then it will be really bad. President and Vice President would then be gone. First, according to the Presidential Succession Act of 1947, the House Speaker takes over the presidency. But in a counting chaos the majority could be unclear. Next in line would be the majority leader in the Senate, currently a Republican. But also in the Senate 35 seats are up for re-election.
In this case, Trump and the other players would probably not step down and insist on a final count. The consequence for the stock market: a total crash to unprecedented depths and a steep recovery when the battle is over.
Scenario 4: Moderate Trump-Crash plus follow-up bull market
Trump wins on election evening – although he is currently worse nationally than four years ago. But he is doing better in the battleground states of Wisconsin, Michigan, Minnesota and Florida. Afterwards a few weeks of confusion because of the count. The stockbrokers go underground and play it safe. Then Biden shows reason and admits defeat. After that, broad recovery on Wall Street. Except for Big Tech, which is likely to be about to be crushed.
Scenario 5: Immediate massive Trump bull market
Maybe everything will turn out differently: Corona is on the retreat or a working vaccine will give people new courage – people are no longer afraid to go to the polling stations. Moreover, many US citizens realize that postal voting only brings problems. The economy and the stock market pick up, Trump triumphs. The bulls can look forward to a mega bull market. Especially since the victory over Corona should bring about a strong economic recovery.
So the next few weeks will be exciting. Assume that the stock market will fluctuate wildly depending on the probability of a scenario. The live debates between Trump and Biden will be important – the Democrats are looking forward to them with concern, as their candidate recently showed some signs of dementia again. For example, he read the stage directions of his team during interviews. The Bernstein Bank wishes successful trades – we will keep an eye on the matter for you.
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