Another shock US election result – who could have guessed this might happen?

Despite predictions of a clear cut Biden victory, it could be weeks before we get a decisive result in the US election. John Stepek explains how it could affect your investments.

Gosh. A surprise election result. Who could've seen that coming?

Turns out that Joe Biden didn’t win a landslide. For all we know, he might not have won anything.

I was hoping that this morning we’d be able to put all this unpleasantness (by which I mean, our obsession with US politics) behind us.

Apparently not.

Fiscal stimulus might not be as quick to arrive as markets had hoped

As I write this morning, it looks as though we’re not going to know who’s won the US election for a while.

Donald Trump has already said that he’s won. Joe Biden has also said that he thinks he’s going to win. There are loads of ballots still to count in various key states (this is one of the many elements of the US system that baffles me).

Whoever ends up winning on paper, we’re almost certainly going to see legal challenges. We’ll now be on edge about civil unrest, rogue headlines, angry recriminations on all fronts, and the minutiae of the voting systems of individual states for days, possibly weeks, maybe months. It’s like an angrier version of Bush vs Gore in 2000. In other words, from an uncertainty point of view, this is your worst-case scenario.

What does it all mean for markets though? The real issue for markets right now is not the question of unrest, or any of the other more overtly political issues that the pundits will be throwing about for the next few weeks. It’s not even mostly about who ends up being president. The real issue for markets is this: they’ve been hoping for a reflationary blast of refreshing fiscal stimulus, all funded merrily by the Federal Reserve under Jerome Powell.

Powell, along with the rest of the world’s central bankers, has made it very clear that money is there to be had. Governments just need to ask. And it seemed a sure thing that whoever won – Democrats or Republicans – there’d be an appetite for that extra spending. Democrats wanted a “Green New Deal”, while Trump is hardly known for his fiscal rectitude.

But now it looks as though no one party will be entirely in charge. That means they need to compromise and deal with one another to get any sort of big “stimulus” deal pushed through Congress. The odds of that seem… slim. As John Authers put it in his newsletter for Bloomberg this morning, “with a Republican Senate, we either have the economic status quo, dominated by monetary policy, under President Trump; or a Biden versus Mitch McConnell dynamic in which fiscal policy would become even more frugal.”

There’s also the concern that this might take a long time to be resolved. While that’s happening, stimulus is definitely not happening.

What does this mean for your investments?

So what does it all mean for your money? In the short term, my advice is not to worry about it. This is all noise. It’s very noisy noise, and obviously it’ll be a lot worse for any of our US readers (my sympathies). But it’s noise. As I’ve said before here, at some point America will have decided on a president.

You might bewail the democratic process, but bear in mind that only 15 years ago or so, we were all moaning that people were disengaged because politicians were all the same. You can’t say that now. Turnouts are huge, and results are tight, and candidates have very different positions to one another. This is what happens when large groups of people disagree over the best way to run a country. Don’t throw democracy out just because it’s working differently to the way you wished it did (although I’ll grant you that the admin side of the US system could do with improving).

In the longer term, the thing that would have the most impact from an investment point of view is any stalling in the handover from central bankers to politicians. What it boils down to is that Jerome Powell and his colleagues may be left propping markets up again.

Can they do that? Well, yes, frankly. There’s always more money to be printed – and who knows? In the absence of more spending from the government, maybe they would contemplate negative interest rates. So I’d expect looser monetary policy in the absence of fiscal policy picking up the slack.

So overall, I wouldn’t be making any changes to your investment plans off the back of this result (or lack of result). Don’t panic, don’t pay too much attention to the news (it's mostly speculation – I listened to three or four reporters in a row on BBC Radio 4 this morning re-state precisely the same point, only using different words), and stick to your plan.

And subscribe to MoneyWeek magazine. We’ll let you know the longer term impacts as and when the result becomes clearer. You can get your first six issues free right here.


What you should do if your energy provider goes bust
Personal finance

What you should do if your energy provider goes bust

At least four energy firms have gone under in recent days as the price of gas and electricity soars. Saloni Sardana looks at what to do if your energy…
20 Sep 2021
China’s property woes are coming to a head – so what happens now?
China stockmarkets

China’s property woes are coming to a head – so what happens now?

Chinese property giant Evergrande is in big trouble. And with no bailout plan yet, markets are getting nervy. John Stepek looks at how things might go…
20 Sep 2021
Three strong Asian stocks trading at bargain prices
Share tips

Three strong Asian stocks trading at bargain prices

Professional investor Nitin Bajaj of the Fidelity Asian Values investment trust picks three stocks that dominate their industries, earn good returns o…
20 Sep 2021
Iris Apfel: an inspiration to young fashionistas

Iris Apfel: an inspiration to young fashionistas

Iris Apfel made her name as a high-society interior designer before a show at the New York Met turned her into a fashion influencer. At 100 years old,…
19 Sep 2021

Most Popular

The times may be changing, but don’t change how you invest
Small cap stocks

The times may be changing, but don’t change how you invest

We are living in strange times. But the basics of investing remain the same: buy fairly-priced stocks that can provide an income. And there are few be…
13 Sep 2021
Two shipping funds to buy for steady income
Investment trusts

Two shipping funds to buy for steady income

Returns from owning ships are volatile, but these two investment trusts are trying to make the sector less risky.
7 Sep 2021
Should investors be worried about stagflation?
US Economy

Should investors be worried about stagflation?

The latest US employment data has raised the ugly spectre of “stagflation” – weak growth and high inflation. John Stepek looks at what’s going on and …
6 Sep 2021