'Blue Wave Expectations' Boost Stocks on US Election Day... No Repeat of 'Trump Fear' from 4 Years Ago

[Asia Economy Reporter Seulgina Jo] The 'Trump fear' that devastated the global financial markets four years ago did not reoccur. On November 3rd (local time), the day of the U.S. presidential election, the New York stock market showed a rise of around 2% due to expectations of large-scale economic stimulus measures after the election, and both government bond yields and oil prices also rose. This is in stark contrast to the election day four years ago when major countries' stock markets plummeted without exception and frightened market funds rapidly flowed into safe assets.

On that day, the Dow Jones Industrial Average in New York closed at 27,480.03, up sharply by 2.06% from the previous session. This was the largest daily gain since July. The S&P 500 index rose 1.78%, and the tech-heavy Nasdaq index closed up 1.85%. In the New York bond market, the benchmark long-term market yield, the U.S. 10-year Treasury yield, rose to 0.881% that day, the highest level since June. The yield spread with the 2-year note widened to levels seen in January 2018.

International oil prices also rose to their highest level in a week. On the New York Mercantile Exchange (NYMEX), December delivery West Texas Intermediate (WTI) crude oil closed at $37.66 per barrel, up 2.3% ($0.85). This marked a 2% increase for two consecutive days following the previous day.

This is analyzed as reflecting the possibility of a 'Blue Wave,' meaning Joe Biden's victory and the Democratic Party's control of the Senate. Hong Lee, who is in charge of the U.S. stock market at Citibank, said, "The possibility of a Blue Wave has increased," and added, "If the election results come out quickly and clearly, market uncertainty will be removed, and the economic stimulus package will become clearer." Solita Marcelli, Chief Investment Officer for the U.S. market at UBS Global Wealth Management, said, "Usually, the stock market is more anxious about the Democrats than the Republicans, but this year’s election is unique."

If Biden wins and the Democrats lead both the executive branch and Congress, large-scale economic stimulus measures such as COVID-19 response and infrastructure investment are expected to be actively pursued. In particular, the additional stimulus package proposed by the Democrats is around $3 trillion, more than twice the size proposed by the Republicans.

However, even if Donald Trump’s re-election is confirmed against expectations, the stock market is expected to be positive. Both President Trump and candidate Biden prefer monetary easing and low interest rates, so a post-election rally is anticipated due to the removal of uncertainty.

Additionally, there is an analysis that a kind of learning effect has occurred regarding the global financial market turmoil when Trump defeated then-Democratic candidate Hillary Clinton four years ago. During the campaign period, Trump’s unpredictable and aggressive behavior greatly increased the uncertainty that financial markets fear most.

The Wall Street Journal (WSJ) reported, "Historically, the U.S. stock market has shown good results on election days," noting that "the S&P 500 index has risen an average of 0.9% on the 10 election days from 1984, when presidential polling began, to 2020." The number of times was eight in total. According to Yadani Research, since 1945, during six Blue Waves, the S&P 500 rose 56%, while during Red Waves, it rose 35%.

Currently, the market views the scenario where Biden, who led in the polls, becomes president and the Republicans hold the Senate majority as a negative factor on Wall Street. This is due to concerns that it would hinder the announcement of stimulus measures.

CNBC stated, "What investors want is a clear candidate," and predicted that even if the election count shows mixed results, the market will be negatively affected. In key battleground states that determine the final outcome, a close race within the margin of error is currently unfolding. In the worst case, there are concerns that uncertainty will continue until the presidential inauguration in January next year due to lawsuits and recounts.

Art Hogan, Chief Market Strategist at National Securities, said, "Even if there is no clear winner tomorrow morning, the market will not be surprised," but pointed out, "If mentions of legal battles and recounts continue until mid-next week, that would be the worst-case scenario." Tom Essaye, founder of The Sevens Report, said, "Ultimately, the market wants clarity on the election results."

The Chicago Board Options Exchange (CBOE) Volatility Index (VIX), known as the fear index, fell to 34.49 that day. Although it remains well above the medium- to long-term average, it has been declining since surpassing 40 at the end of October. Barclays described this as "healthy anxiety among investors." Concerns about chaos surrounding the election results remain, and the price of gold, a safe asset, also rose. December delivery gold closed at $1,910.40 per ounce, up 1% ($17.90), recovering the $1,900 level.

This content was produced with the assistance of AI translation services.