Markets Remain Cautiously Optimistic

05/11/2020

Counting votes continues, and the outcome of this election is yet to be determined. Trump’s campaign had falsely claimed victory after the news came out that Joe Biden won several vital battlegrounds. The media are hesitant to make any premature projections, so they massively and bluntly rejected Trump’s victory claim.

 

The market’s reaction was mostly positive; the S&P 500 went up 2.21%, reaching 3,443.47, and the Dow Jones Industrial Average climbed 1.34% to 27,847.93 on Wednesday.

 

Compared with the 2000 presidential election between George W. Bush and Al Gore, markets react positively to the uncertainty. In 2000, the race in Florida became very close, which left the nation without a clear winner for a month; one day after the election day, the S&P 500 plummeted by 8%. On the contrary, now in 2020, the reaction is different thanks to one unique aspect: we are in the middle of a worldwide pandemic and the deepest recession since the Great Depression.

 

Many market analysts believe that the market is run by other factors, such as optimism over a soon-to-be-available vaccine by the first half of 2021 and probably some quick policy actions from the world's central banks.

Nevertheless, the risk of a prolonged, highly contested election can be the worst outcome and downside risks for the markets.

 

The bank of England introduced a new monetary stimulus package to its weakening economy. The bank decided to leave interest rates unchanged, at 0.1%, after examining the possibility of cutting it to zero or even lower in recent weeks. The move was the central bank’s response to the U.K. economy, which is suffering from the second wave of the coronavirus pandemic. The news helped the pound rise by around a quarter of a cent.

 

In corporate news, ArcelorMittal (NYSE: MT) is in focus after the world's biggest steelmaker exceeded expectations with its third-quarter results in profit. Among losers, Lufthansa (DE: LHAG) reported a net loss of 2 billion euros in the third quarter. It was not a shock as the pandemic caused a slump in the traveling sector.