Stock futures opened slightly higher Monday evening ahead of Election Day, as investors weighed a host of possible outcomes against a backdrop of an ongoing pandemic and lingering economic strain.
Contracts on the Dow added just over 40 points, or 0.2%, as overnight trading kicked off, following a rally of more than 420 points, or 1.6%, earlier during Monday’s session. S&P 500 and Nasdaq futures each also ticked up slightly in late trading.
A number of analysts cautioned against making drastic bets on the direction of the stock market post-election, especially given the volatile moves that ensued during and after the 2016 presidential election. During the overnight session following Election Day 2016, as states were being called, S&P 500 futures slumped 5% to trigger “limit-down” and prevent further losses – but the index recuperated these losses to close more than 1% higher at the end of the first regular session post-Election Day.
“The experience of 2016 suggests that investors should be careful about taking strong positions on political outcomes and, worse, mechanically translating those to market outcomes,” Neil Shearing, chief economist for Capital Economics, said in a note Monday. “Back then, the consensus was that Trump was unlikely to win, but if he were to prevail then his rhetoric on trade and ‘carnage in America’ would spell disaster for equity markets. We all know what happened next.”
And given a surge in the number of early and mail-in voters this year, the results of the election and winners of the White House and Senate may not become clear until at least later this week. As of Monday evening, more than 97 million Americans had already cast votes in the general election, according to the U.S. Elections Project, for a sum well over two-thirds the number of voters who turned out in the entire 2016 general election.
Based on national polling as of Monday, former Vice President Joe Biden had an edge on President Donald Trump to come out victorious after the election. However, his lead narrowed considerably when looking at key swing states versus the national polls, leaving a path to victory for the incumbent as well. According to Quinnipiac’s final pre-election poll released Monday, Biden had a wide lead nationally with 50% of likely voters supporting him versus 39% for Trump. But the poll showed that in Florida, 47% of likely voters supported Biden versus 42% for Trump, and in Ohio, 47% supported Biden and 43% supported Trump.
But the winner of the White House will not be the only factor of consequence to markets: The combination of which party takes the presidency and Senate is also set to play a major role in what policies become law, in turn setting the stage for a host of impacts to corporate America.
“We see fiscal policy as the most critical area to watch, as it has been helping to sustain the economy through the COVID shock. The two Biden victory scenarios look very different through this fiscal lens, in our view,” BlackRock analysts said in a note Monday. “We believe a Democratic sweep could pave the way for a new round of large-scale fiscal stimulus and boost spending on clean energy, transport and housing. It may also bring higher taxes for companies and the wealthy.”
“A Biden win with a Republican-controlled Senate would likely lead to much less fiscal stimulus, little public investment and no major tax changes,” the analysts said “Fiscal stimulus under a second Trump term may lie somewhere between these two scenarios, we believe, while public investment could be similarly small as under a Biden divided government.”
“We believe a ‘tax-centric’ election analysis — with a Democratic sweep seen as a market negative, and divided government a positive — is too simplistic,” they added. “Investors would have to balance higher taxes and tighter regulation of a Democratic sweep with greater fiscal support and more predictable foreign policy. We see the main implications of this scenario in fixed income and leadership in equity markets. It could push long-term rates modestly higher and bring forward the market pricing of the higher inflation regime that we were already reflecting in our strategic asset views.”
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6:05 p.m. ET Monday: Stock futures tick higher ahead of Election Day
Here were the main moves in markets, as of 6:05 p.m. ET Monday:
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S&P 500 futures (ES=F): 3,308.00, up 7.5 points or 0.23%
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Dow futures (YM=F): 26,877.00, up 81 points or 0.3%
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Nasdaq futures (NQ=F): 11,082.25, up 19 points or 0.17%
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