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US Election: tight polls leave a wide range of possible market implications

In Short

With few days before the US election, uncertainty on the outcome is umprecedently high. Therefore, the range of outcome in terms of fiscal and trade policy remains wide. In what follows we recap the key issues investors should consider.

Highlights:

  • Polls are showing Trump making gains but the lead over Harris is very small. Bets are clearly pointing to a Trump win, but pricing may be distorted by the build-up of few large tickets. Markets appear heavily tilted towards a Trump win, also discounting a high likelihood of a Republican control of the Congress. 
  • What matters much, especially for fiscal policy, is whether the new president will enjoy the backing of the Congress. A Republican sweep appears quite likely if Trump wins, much less so in case of Harris. 
  • Given the tight polls in key swing states, a repeat of what happened in 2000, when the President was proclaimed only after one month of litigation, cannot be ruled out. 
  • With either party gaining control of both the White House and the Congress, fiscal expansion and (in case of Trump) tariffs may lead to higher rates and a strong USD, putting pressures on EMs. A Trump win would favour US HY and equity at the expense of EMU. 

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