A convincing win for Biden - but uncertainty remains

It is now increasingly clear that Joe Biden has won the US election and will become president in January 2021. 

Donald Trump has not yet conceded defeat - and continues to challenge the result through the courts. However, none of his legal efforts so far have borne fruit and the chances of Biden's victory being overturned are fast diminishing. 

This is a convincing win for Joe Biden, at least in terms of share of the popular vote. However, it is not quite as strong as many polls suggested. Once again, the polling industry appears to have underestimated Trump's popularity with the US electorate.  

It is also apparent that a "blue wave" - with Democrats winning both the presidency and Congress - will not happen. Republicans look set to retain the Senate, placing a significant block on presidential power. 

What does it mean for markets?

Stock markets have risen sharply since the election. This likely reflects the fact that there is now a much lower probability of a protracted, contested election process. Investors may also be relatively pleased at the prospect of "gridlock" in Washington. 

With Republicans in control of the Senate, it is unlikely that Biden will be able to pass mooted increases in the corporate tax rate. The Senate may also limit his ability to impose stricter regulations on large parts of the US economy.    

In the near term, gridlock will impact the speed and scale of any additional stimulus to help the US economy recover from the pandemic. Any package is likely to be more conservative than might have been the case under a Democrat Senate.

The reduced likelihood of a more significant fiscal boost has seen investors retreat from "reflation trades" -  investments expected to outperform in a stronger economic recovery. In bond markets, we have seen a rally in long-dated US treasuries, which tend to perform better in an environment of lower growth and lower inflation.

The tech-heavy Nasdaq index has outperformed the broader S&P since the election. The move likely reflects reduced concern over greater regulation of the tech sector than might have come with Democrat control of the Senate. Without a larger fiscal boost to support growth, tech also continues to look relatively more attractive than many other parts of the stock market.  

Our portfolio positioning

Our portfolios are well positioned for this election outcome. We have avoided excessive exposure to areas of the market bid up in anticipation of a blue wave. We also increased our exposure to US Treasuries in recent months, which are performing well.

To a large extent, the excitement around the election outcome is political noise. In the bigger picture, recovery from the pandemic remains a major concern. It is not yet clear how strong or rapid that recovery may be. Other risks which we have identified, including trade relations and high levels of government debt, remain concerns irrespective of who is in the White House.