Joe Biden seems set to become the 46th President of the United States as over the weekend most major news outlets projected his victory, and numerous world leaders queued to congratulate him.
Despite what appeared at first to be a terribly close-run affair, Biden’s success in hindsight now looks relatively comfortable, as with a couple of states still to formally declare, he leads the popular vote by more than 4 million and according to Bloomberg’s latest estimates has won 290 electoral college votes versus Donald Trump’s 214; the threshold to win is 270. Biden is also projected to win the state of Georgia’s 16 electoral college votes which would eventually put him on a total of 306, though the state still looks to be heading for a recount.
In the UK, following the start of the month-long English lockdown, Chancellor Rishi Sunak relaunched the furlough scheme and committed to its running through to March 2021 at least, with the Government again paying 80% of workers’ wages for businesses that are shut. While no doubt welcome to many businesses it still does little to address their fixed costs, and to us suggests the Government may look to keep restrictions tight in the months ahead.
In markets, equities were broadly very positive, belying the apparent uncertainty resulting from the US election. The biggest gains were seen in riskier areas of the market – parts of emerging markets, Europe and the UK – helped by a weakening US Dollar as investors priced in the increasing likelihood of a Biden victory. In Pound terms, European equities were best of the major regions, rising by 7.3%, with the FTSE 100 slightly behind on 6%. The S&P 500 eventually rose by 5.6%, while Asian equities gained 4.3%.
More interesting moves were seen beneath the surface of the headline index figures. Monday and Tuesday saw a continuation of the strong ‘value’ equity rally hinted at in recent weeks as investors priced in the near certainty of a Democrat ‘blue wave’ in the US election. As it became apparent that this was not going to be the case, we saw a rotation back to those stocks that have historically performed well in a low tax and interest rate environment; predominantly technology and other ‘growth’ equity winners from 2020.
Government bonds fell during the week despite a brief rally on Wednesday and Thursday; Gilts and index-linked Gilts dropped by 0.4% and 1.3% respectively. Riskier investment grade and high yield corporate bonds rose strongly in the risk-on environment. Gold and Silver both rose in value, by 2.1% and 6.8% respectively, pricing in continued low nominal interest rates but a still-good chance of fiscal stimulus.
Market views by Ollie Stone – Head of Portfolio Management and Fairstone Private Wealth Ltd (9th November 2020)