Who is the President?

Abraham George Macro View

Tonight could be the real test of American democracy. While the whole country is willing to loose its mind over an election, be prepared for uncertainty, civil unrest, anger, mutual hatred, market volatility all in the midst of a pandemic that is begetting even more confusion.

Election pundits estimate that early and mail-in voting will make up the majority of votes in 2020 for the first time in US history. That’s a big jump from 2016 when early voting made up 42.4% of the vote and in 1972 when it was just 5% .

Our main interest in the election is what impact it will have on the markets under each presidency. In a Trump presidency, we can expect a rotation in the markets towards energy, infrastructure and value stocks. The tech giants could undergo a potential valuation tipping point. In a Biden victory, a rotation into the stocks that benefit from the Democrat “clean energy plan”.

In the case of a Trump win with an aligned Congress, one should expect a more aggressive opening up of the economy and another stimulus package that would fund an aggressive infrastructure development in bringing the supply chain back to US as the center slogan. A stimulus package under Biden could be double that of Trump as the Democrats will be looking for a total economic transformation with their “clean energy” ideas.

In the case of a Biden win and a split congress, Biden could hold the economy hostage, through tighter virus control and force the Republican led Senate to agree on a second stimulus package to fund the clean energy plans. If in case of a prolonged period of uncertainty with a contested election, we should get more Fed action and a second stimulus package.

Equities

As long as markets do not rally above 28,958 in the Dow and 3550 in the S&P 500 which is the Oct 12 high, the path of least resistance should be to the downside. A break below the lows of last Friday should give more credibility to this view.

Bonds

Bonds have bounced of from its lows at 172. Again it should hold below its recent highs at 174^29.

Euro

The Euro dropped to 1.1622 but found some temporary support. A break below 1.1610 will invalidate the triangle scenario that we were alluding to.

Gold

Gold should top out in the region of 1905 to 1910. Only a move above 1934 will increase the odds for an up move.

Abraham George is a seasoned investment manager with more than 40 years of experience in trading & investment and portfolio management spanning diverse environments like banks (HSBC, ADCB), sovereign wealth fund (ADIA), a royal family office and a hedge fund.