Why Donald Trump vs Joe Biden in US election should keep investors on their toes

The twists and turns so far of the divisive contest, amid a global pandemic and widespread economic pain, are not yet reflected in buoyant financial markets

But the result will be consequential, especially given the possibility of the incumbent refusing to concede defeat. The risks should not be so easily dismissed

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Supporters of US President Donald Trump stand for the national anthem before a campaign rally on August 18 in Yuma, Arizona. Trump is currently trailing his Democratic rival Joe Biden in the polls but it would be a mistake to write off his chances. His base is more passionate about him than Democrats are about Biden. Photo: Getty Images / AFP

Published: 5:00am, 21 Aug 2020Updated: 7:10am, 17 Oct 2020

It is the most unpredictable, divisive and, without a doubt, the most consequential national election in a leading economy in recent memory. What is more, it is taking place against the backdrop of the most severe public health crisis in a century and the worst recession since the Great Depression.

Yet, America’s presidential election, which is due to be held on November 3, is having scant impact on financial markets for the time being. On Tuesday, the benchmark S&P 500 index, which has surged 51 per cent since its low on March 23, hit an all-time high, underpinned by a ferocious rally in American technology stocks.

Indeed, in Bank of America’s latest fund manager survey, published on Tuesday, respondents ranked the election as the third-biggest “tail risk” in markets, behind a second wave of Covid-19 cases and the US-China trade conflict – threats which themselves have not stopped asset prices powering higher in recent months.

While markets are being driven almost entirely by the unprecedented monetary and fiscal stimulus measures in response to the pandemic, investors would do well to begin positioning themselves for one of the most perilous moments in American political history. For the first time, the possibility of an incumbent refusing to concede defeat, precipitating a full-blown constitutional crisis, is being taken seriously by political analysts and academics.

US President Donald Trump attends a news conference in the White House on August 19. Trump has floated the idea of delaying the election, and sowed doubt about its legitimacy. Photo: Bloomberg

US President Donald Trump, who currently trails his Democratic Party rival Joe Biden by nearly 8 percentage points in an average of national polls compiled by RealClearPolitics, has already floated the idea of delaying the election. More troublingly, he has suggested that the ballot could be rigged against him due to the pandemic-induced expansion of postal voting, which Trump claims (without evidence) is rife with fraud.