Traders should be cautious to keep away from being “hurled” in a good election marketing campaign, warns the economist
Forex traders monitor exchange rates on November 4, 2020 in a trading room at KEB Hana Bank in Seoul as Asian markets respond to early predictions after the US presidential election.
YOUNG YEON-JE | AFP | Getty Images
Investors should be careful not to be “thrown” by the ongoing “confusion” in the market, economists told CNBC, as the race to the White House is likely to take days.
The US election winner stays too close to be called on Wednesday morning.
President Donald Trump is expected to win Florida, Ohio and Texas, while former Vice President Joe Biden is confident he will ultimately prevail.
Shortly after Biden approached his supporters, Trump falsely claimed an election victory. His utterances came with millions of legitimate ballots to be counted.
Many market participants had expected that Biden would achieve a clear victory. However, the Democratic candidate failed to win major swing states that are counting votes quickly and will now have to wait for states to complete the counting of a large number of postal ballot papers given amid the coronavirus pandemic.
The Dow Jones Industrial Average futures were unchanged on Wednesday morning after switching between strong gains and losses when the election results came in with no clear winner. The S&P 500 and Nasdaq 100 indexes were both slightly higher.
European stocks were slightly lower during morning trading as investors watched recent developments closely.
People watch a big screen showing live Florida election results on Black Lives Matter Square across from the White House on Election Day in Washington, DC on November 3, 2020.
Olivier Douliery | AFP | Getty Images
Gregory Daco, chief US economist at Oxford Economics, told CNBC over the phone that market participants should be "very careful" not to be "hurled" as various states confirm their election results.
"Depending on the outcome, we might get one of several scenarios, but assume that things are going relatively smoothly and that we don't have a long period of uncertainty. In this environment, you'd be more likely to get a classic market reaction based on." the candidate's political proposals, "said Daco.
He identified energy companies, especially green energy stocks, and those focused on infrastructure, growth, trade and agriculture, as companies likely to benefit from a Biden win or evidence that the Democrats were destined to own the house, the Senate and secure the White House.
If Trump and the Republicans were apparently on their way to victory, Daco said investors could expect greater growth in banking, defense stocks, pharmaceuticals and biotechnology.
"These could be sectors in which regulation under a Trump administration is less perceived than under a Biden administration," said Daco.
Market winners and losers
By 3:35 a.m. ET, Biden had received 220 votes, while Trump had received 213 votes, according to NBC News forecasts.
Both candidates are aiming for 270 votes in order to secure the presidency.
Market focus is now on three major Rust Belt states, but final results for Michigan or Wisconsin may not be in until late Wednesday morning, and Pennsylvania may not be called later in the week.
Cailin Birch, global economist at The Economist Intelligence Unit, told CNBC via email that the lack of a clear result in the presidential election "would continue to create confusion".
"Markets appear to have priced in the likelihood that tabulating results will take longer this year given the unique conditions created by Covid-19. Therefore, we do not expect any significant market volatility as part of our core forecast," said Birch.
"Roughly speaking, the 'winners' under Biden would be renewable energy and construction, as well as an improvement in general market sentiment due to the prospect of greater political clarity and a second round of economic activity in 2021," she continued.
"Potential winners under Trump would be fossil fuels, mining and potential financial services. In any event, it will take us several days to see the implications for the sector once the final election results are confirmed."
A Detroit Electoral Department employee waits for the next postal vote to be sorted on November 4, 2020 on the Central Counting Board at the TCF Center in Detroit, Michigan.
Elaine Cromie | Getty Images
Oliver Jones, chief market economist at Capital Economics, emailed CNBC that investors were primarily focused on prospects for shorter-term tax assistance and that substantial assistance would be much easier to obtain through a joint congress.
He added that "there would still be some hurdles ahead of a side in order to achieve a filibuster-safe Senate majority".
"Conversely, any outcome that divides Congress could be negative for stocks and positive for government bonds, regardless of who ends up in the White House," Jones said.