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Bank of America Expecting a Contested Election to Shake Up Markets

(Noted News) — According to Bank of America, fund managers with at least $623 billion under management are preparing for maximum market volatility with the expectation that President Donald Trump won’t accept a loss to Joe Biden, who holds a sizeable lead in the polls. 

The 224 investors surveyed by BofA believed that the election on November 3rd would be the 2nd biggest risk for the financial markets, right after COVID-19. 61% of them believe that the vote would be challenged causing unprecedented volatility as the historic year of 2020 comes to a close. At the time the survey was conducted, Joe Biden was leading in most of the polls by an average of 9 percent over Trump. 

Ronald Temple, Lazard Asset Management’s head of equities, said that despite not supporting a “blue wave”, the investors would still prefer that the result of the election was at least clear, republican or democrat. The amount of uncertainty and tension that is to be expected of a contested election is bad for markets, he said.

“The worst outcome is a contested election because companies and investors really hate uncertainty. Part of the reason you’ve seen markets working their way back higher in the last couple of weeks is that the probability of a contested election has gone down.”

Despite the economy being half-frozen, and the myriad of other issues facing the broader economy at large, the S&P managed to completely erase its losses from the initial COVID-19 crash, and then rally an additional 10% in the past three weeks on the hopes of more fiscal stimulus packages. 

BofA’s survey also revealed that 39% of investors are expecting a Covid-19 vaccine to be announced at some point in the first quarter of 2021, enhancing market optimism as long as any election drama is resolved. 60% of investors believed that the economy is in an early recovery phase, even as Pfizer’s vaccine got pushed back to February.

Asset managers are continuing to lower their exposure to cash, falling to just 4.4% in the latest survey period, and boosting their exposure to equities, with 27% of respondents saying they are “overweight” in stocks. BofA called this level of exposure optimistic but not “dangerous”. 

Fund managers are also putting more money into healthcare, staples, and Japanese stocks, while selling off things like energy, banking stocks and bonds. 50% of respondents believe that the tech stocks will continue to lead the way in market growth for 2021. 

Adding to the election tension, Senator Dick Durbin, D-Ill, said that the main reason that Trump rushed to nominate Judge Amy Coney Barret to the Supreme Court following the death of Ruth Ginsberg was so the Supreme Court could “rule in his favor on any election contest”

“President Trump has made it clear he wants another of his appointees on the Supreme Court before the election because he anticipates court challenges over the vote. President Trump has indicated he’d be perfectly happy to have a close election decided by a 6-3 conservative majority Supreme Court rather than by the votes of the American people.”

Durbin continued to grill Judge Barret about other aspects of her nomination. 

“Judge Barrett, your nomination for a lifetime appointment to the highest court in the land comes before us under a cloud. Abolish the [Affordable Care Act], rule in his favor on any election contest and even more. You cannot feel good upon a president cheapening this historic moment.”

The top-ranking Democrat is also certain that the current President will refuse to accept a loss.

“This may be one of the most consequential elections in our nation’s history because, for the first time in the history of the United States, an incumbent president refuses to commit to a peaceful transition of power if he loses the election.” 

Early and mail-in voting has already begun, and the final stage of the election will be November 3rd, 2020. However, it’s still unclear what will take place from November 4th onward.

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