How Markets Responded to 2020 Election Results
The 2020 elections were very different from past elections. Millions of Americans voted for the first time by mail due to COVID-19. For many, this election was a referendum on President Trump’s and the rest of the government’s response to coronavirus. As a result of the unprecedented number of mail in ballots, election results took much longer than normal. The election was not called by most networks until days after election night, and as of Dec. 11, President Trump has yet to concede the election. These unique conditions, as well as the long wait for election results, dramatically affected how markets responded to the election.
First, president-elect Joe Biden played a major role. Over the past several months, markets continually jumped at the news of new stimulus bills. Biden was expected to dramatically increase stimulus spending. His confirmation as the declared winner by major networks boosted the stock market.
Other factors were in play as well. The Republican Party did well in the congressional elections; Republicans won several House seats and seem likely to hold control of the Senate (although due to the runoff elections in Georgia, results will not be known until Jan. 2021). This means that chances are that no one party will control the Presidency, the Senate, and the House. According to an article by the New York Times, investors responded positively to this probable gridlock in the federal government. The article furthers that Biden’s more liberal economic policies, which investors generally don’t support, would struggle to get through.
Finally, it is very possible that markets would have responded positively, regardless of the actual election results. Markets do not favor uncertainty because it makes it difficult to plan and invest. It is hard to predict unknown variables. Known election results make it easier to know what future policy will look like.
So what can we expect in the future? Prior to inauguration day, there’s still a lot that can happen politics-related that could affect the stock market. First, the Georgia Senate runoffs. Both take place on Jan. 5 (although early voting starts several weeks earlier). Inauguration Day is just fifteen days later on Jan. 20 (if Democrats win both runoffs, they will have control of the Senate -it would be a 50-50 split, but VP-elect Kamala Harris would decide ties.) The results of these two elections will not only decide who has control of the Senate, but also how much Biden will be able to do during the first two years of his term.
In addition to the runoffs, Biden has pending announcements of some of his Cabinet picks. According to Market Watch, when Janet Yellen was announced as Treasury Secretary on Nov. 23, both markets and investors responded positively to her selection. Biden has not announced his nomination for Secretary of Commerce, which could potentially have some effects on markets.
Finally, any potential decisions by President Trump in the last days of his presidency could possibly affect markets.
Ultimately, it is impossible to predict how markets will react to political events, if recent events in the past year have taught us anything. Only time will tell.