CNN Business/Matt Egan
The 2000 recount was a mess. A contested election now would be much scarier for Wall Street
Uncertainty is the enemy of markets. And it doesn’t get much more uncertain than a messy fight over who the leader of the free world is.
Wall Street’s nightmare scenario is that one or both presidential candidates contest the results of Tuesday’s election.
The vast majority, 83%, of portfolio managers surveyed by RBC Capital Markets believe a contested election will be either bearish or very bearish for stocks. Just 2% see that scenario as bullish.
“A drawn-out contested election with lawsuits and recounts would hurt the market in our view,” Citigroup chief market strategist Tobias Levkovich wrote in a note Monday.
This is a real risk because President Donald Trump has baselessly claimed for months that the election is “rigged” and at times refused to commit to a peaceful transfer of power if he loses to Joe Biden.
Levkovich said it’s “plausible” that some of last week’s retreat — the S&P 500’s worst week since March — was driven by “tightening up” of polls in several battleground states.
The best historical parallel is the 2000 standoff between Al Gore and George W. Bush. The S&P 500 dropped nearly 12% between that election and the December 20 low, according to RBC.
Yet the 2000 recount may not have been the primary force behind that selloff, which took place as the economy weakened and the dot-com bubble burst. Between Election Day and Gore’s December 13 concession speech, major companies including Apple (AAPL) and Compaq rattled investors with profit warnings.
But there are major differences between that contested election and today’s situation that make this one more precarious.
First, the United States is much more divided today than it was two decades ago. That raises the risk that anger over the election spills over into the streets.
“The biggest risk to markets is a violent response to whatever Tuesday night and Wednesday bring,” said David Kotok, chief investment officer of Cumberland Advisors. “Markets don’t like violence.”
In anticipation of possible post-election unrest, some retailers in New York City and Washington have boarded up store windows. Federal authorities are also expected to install a “non-scalable” fence around the perimeter of the White House.
“In 2000, there wasn’t widespread unrest in the country. This time, there is a risk that protests could get out of control,” said Greg Valliere, chief US policy strategist at AGF Investments.
Gold rises as investors await U.S. election outcome
Spot gold rose 0.3% to $1,899.91 per ounce. U.S. gold futures gained 0.4% to trade at $1,900.50 per ounce.
“Sentiment is hanging by a thread at the moment … Everybody is quite unsure where the election is headed to, given the number of possible outcomes,” said Howie Lee, economist at OCBC Bank.
As long as there isn’t a Democrat sweep, there will be questions on fiscal stimulus, while an uncertain or contested result will likely favor the dollar and weaken gold, he added.
Election polls show Biden with an outright majority nationally but the race between both him and Republican candidate Trump remains close in several battleground states.
Analysts say a Biden win could help the bullion rally with his plans to inject a potentially large stimulus aid.
Americans are stocking up on cash, gas and food to prep for possible Election Day unrest — ‘It’s not a natural disaster. It’s an election’
For Maine resident Laura Hunter, preparing for Election Day didn’t involve making a voting plan. She voted two weeks early.
Instead, to get ready for Nov. 3, she’s preparing for what some Americans see as a worst-case scenario: Widespread civil unrest or violence following Tuesday’s presidential election. For about a month now, Hunter, who voted for Democrat Joe Biden, has built up supplies of food and cash. She even purchased a butane-fueled stove in the event that the electricity goes out.
“I have what I thought I need for a week or so,” Hunter, 65, said.
In Arlington, Va., Maresa Ciaravella, a 30-year-old mother of one, has made sure both her and her husband’s cars have full tanks of gas should they need to evacuate on a moment’s notice.
Both Ciaravella and her husband are working remotely because of the pandemic. They each have extensive home-office set-ups, and their son attends daycare. All of that made it unfeasible to leave for somewhere that might feel safer ahead of the election, Ciaravella said.