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  • Writer's pictureIshfaaq Peerally

How the Election will Affect the Stock Market

In the long-term, the stock market $SPX500 always goes up, it doesn't matter who is president... But in the short-term, anything can happen and we need to look at some possible scenarios.

The polls show that Joe Biden may win but that doesn't mean that he will win as the polls only show probabilities. In 2016, Donald Trump had only a probability of about 30-40% the day before the elections and he won. There are still many states in play including big states such as Florida and Pennsylvania, therefore, it is still hard to say today, if really Biden can win.

And whoever wins, we may not know the results on the same day since there's a lot of mail in votings this time. There's going to be uncertainties and the market doesn't like that.

If let's say Joe Biden wins and the Democrats win both the Senate and the House, according to JPMorgan and Goldman Sachs, this will be good news for the markets as it will be easier to pass new legislations for more stimulus. The same thing may happen if Trump and the Republicans win.

If we have a situation, where the Government is divided, then the Federal Reserve System will be playing a big role like it is happening today.

If Joe Biden wins, we will see higher taxes, this will be bad for earnings, for employment and for competitiveness but at the same time, relations with China and the EU might be better leading to lower or no tariffs at all. This will be good for big international companies.

But it seems that even with higher taxes, stocks will still be going up as investors don't have better alternatives. The yield on bonds are too low and we can expect higher inflation with the increased money supply.

Another important factor to consider if regulation on the big tech companies and this is something that both parties want to do.

In the short-term, there's only one certainty, that the stock market will fluctuate. We need to focus on the long-term. Invest in stocks which are undervalued and with low correlations with the market. We also need to focus on the certainties. Whoever wins, there's going to be more money printing, 5G and EV will be here.

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