(Bloomberg) — U.S. election night has had its fair share of drama, with some wins for both sides in the bag but key results yet to be decided.
Investors haven’t been sitting aside as votes are counted amid volatile markets. S&P 500 futures have swung between a gain of 2.1% and a loss of 1%. The yield on 10-year Treasuries fell as low as 0.79%, a decline of 11 basis points, before paring some of the drop. The Bloomberg Dollar Index rallied 1% before giving up a slice of the gains.
Here’s what some market watchers are saying:
Bye Bye, Blue Sweep?
“Both the stock and bond markets are saying the same thing: there’s a lower probability of a Blue Sweep, for sure, and higher likelihood that Trump wins,” said Jamie Anderson, head of U.S. trading at asset manager Insight Investment, which oversaw about $946 billion as of September.
With a Trump re-election, a smaller, tax-friendly stimulus package might still come to market, he said, which for bond investors might mean less issuance to absorb at a time when federal deficits are swelling amid the pandemic.
“The bond market was efficiently priced for a ‘Blue Sweep’ and potential for higher deficit spending,” said Subadra Rajappa, head of U.S. rates strategy at Societe Generale SA. Now, “it is looking less likely that we will have the final results soon. So you are seeing a flight to safety as bond investors brace for uncertainty.”
Pennsylvania Is ‘Critical’
“At this point, I’m not sure the market is trading only on Trump,” said Evercore ISI strategist Dennis DeBusschere in New York. “The Senate looks increasingly likely to be Republican.”
He added that “Biden with a Republican Senate is really good for tech as well. I.e., Trump could lose and I’m not sure market internals would change from the current moves (Nasdaq 100 up, rates down etc.).”
“It looks like we will have to wait till tomorrow for an outcome. Pennsylvania is critical and we won’t get much more till tomorrow,” he said.
Long S&P/Short Nasdaq
Rising stocks, a stronger dollar and higher Treasuries mean “higher Trump pricing, ‘America First,’ less fiscal stimulus, less taxes,” said Nader Naeimi, head of dynamic markets at AMP Capital Investors Ltd. in Sydney. “Nasdaq futures directly correlate with Trump winning. And as a ‘Blue Sweep’ is looking less likely, tech is rallying.”
“In my view, that’s a rally to fade,” he said. “Long S&P/short Nasdaq is how I am playing right now” as “global regulatory pressures on tech will continue to intensify no matter who wins the election and the fact that Democrats have a high chance of winning the Senate adds to it.”
Caution on Conclusions
“I just would not leap to any big conclusions,” said Brian Barish, chief investment officer at Cambiar Investors LLC in Denver. “We all saw that in 2016, markets kind of did not get much right about the impact of the election in the initial hours after it was clear Trump would win.”
A Senate Democrat majority of more than 52 seats looks unlikely, he said. “That’s as much as I can see clearly,” but “it does look like a lot of (systematic) polling error again, which is an interesting story in and of itself.”
Equities Versus Bonds
“Equity markets and FX/bond markets are viewing the risk of election result delay differently,” said Masahiro Ichikawa, a senior strategist at Sumitomo Mitsui DS Asset Management Co. in Tokyo. “There is a risk-off mood as dollar appreciated and yen weakens, with expectation that the election delay could be prolonged.”
“There’s mixed reactions/views to the risk of not finding out the election outcome today,” but “either way, regardless of who wins after a possible delay, there will be an economic stimulus bill that will be a positive for the equity markets.”
Stimulus in Doubt
“If Republicans keep the Senate, expect much of the stimulus to get priced out. If the election result is unknown, I doubt we get that bill anytime soon,” said Priya Misra, head of rates strategy at TD Securities in New York.
(Updates with section on “Blue Sweep.” A previous version corrected the location of an analyst.)
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