Equities soar on prospects of gridlock, prefers calm and solace to blue wave

Regardless of who wins the U.S. 2020 elections, some investors have welcomed the prospects that either of the two candidates would most likely face some opposition in the U.S. Congress that would be a barrier to bringing about sweeping changes in legislation.

 “The market likes the fact that we have a gridlock,” said Gary Bradshaw, senior vice president at Hodges Capital Management in Dallas. “We are not likely to see big tax increases, and not a lot of regulation.”

Ahead of the election results, despite predictions that not having an early clear result is likely to derail stocks, equities soared on the prospect of a gridlock which provides some calm and solace.

 “There is no blue wave,” said Robert Sears, chief investment officer at Capital Generation Partners while adding, “The chance of a lot of fiscal spending … that scenario is out of the window now because it looks like Republicans are going to keep the Senate.”

U.S. Treasury bonds rose and the greenback shuffled between gains and losses as investors discounted chances for a massive stimulus package to help the battered economy from the hammering the coronavirus-induced pandemic which emerged from Wuhan, China.

A major bet on a Democratic “blue wave” sweep was being unwound, as traders pulled out of bearish bets that long-dated Treasury yields would rise.

Most U.S. stock indexes ended higher, led by Nasdaq Composite which rose by nearly 4%, reflecting bets on receding chances of a Democratic takeover of Washington that could usher in higher capital gains taxes and tougher antitrust measures, as well the prospect of lower interest rates.

The election has not thrown out a clear winner. The results were more “down the middle,” said Matt Peron, director of research at Janus Henderson Investors in Denver. There is “no clear mandate on either side, so there will have to be a lot of compromise.”

“I think the market sees that as a removal of uncertainty and the market likes that,” added Peron.

Ahead of the crucial vote counting, Biden said he was headed toward a victory while Trump took the legal route by pursuing lawsuits and a recount.

Reflecting the uncertainty, betting markets were seen swings furiously with Biden clinging on to his position as a winner in the U.S. presidential election online betting markets – a shift from the previous night.

Republicans are poised to retain control of the U.S. Senate, following Senator Susan Collins winning her re-election in Maine and other Republican incumbents led Democrats in a handful of undecided races.

Investors remain most worried about the presidential race being too close to call or contested for a prolonged period.

“Markets can live with either candidate,” said Francois Savary, chief investment officer at Swiss wealth manager Prime Partners. “The scenario they don’t want are legal problems over the outcome and significant political unrest.”

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