U.S. Election Realities: Experts Weigh In

After a tumultuous few weeks, Americans – and the world – will have to wait a while longer to know whether Donald Trump or Joe Biden will be the next president of the United States as vote counting continues in a number of key states.

It's unclear just how long the counting process will take; many experts had cautioned that results might not be known for days due to a record number of mail-in votes, which can take longer to process.

What do we know so far? Early morning headlines show it's a tight race overall for either candidate to secure the 270 Electoral College votes needed to win. The state of Florida went to Trump, as did other key states such as Texas, Iowa and Ohio. Biden took Arizona, a state long held by Republicans. He also came out ahead in states such as Vermont, New York, California and Minnesota. But in two key states – Pennsylvania and Michigan – vote counting is ongoing and could take days, according to the Wall Street Journal.

The fight for control of Senate is also ongoing and, according to the Globe and Mail, results may not become clear for days.

There were many unknowns leading into Tuesday's vote, but polls had largely been leaning toward a Biden victory. Still, some election watchers were hesitant to put all their faith in poll projections after Trump came out ahead four years ago despite trailing in most U.S. polls at the time.

To put Tuesday night's results into perspective, we turn to insights that RBC economists and experts have shared. Here are five key takeaways that are relevant for investors:

1. "Whereas the polls, betting markets and models had universally predicted Democratic nominee Biden winning by a fairly wide margin, the actual race is proving much closer. For a second straight election, Republican President Trump is substantially outperforming expectations," says Eric Lascelles, Chief Economist for RBC Global Asset Management, in an early morning note. He laid out a few scenarios of particular interest to investors. "Financial markets have tended to view a Trump victory as bond yield-negative and possibly also stock-market negative. Conversely, a Biden presidency has been viewed as bond yield-positive and perhaps stock-market positive. Alas, a period of post-election uncertainty is probably the more difficult scenario, with substantial uncertainty potentially diminishing risk appetite for a period of days or weeks, though not forever," he says. On the economy overall, "we have estimated that a Biden administration would ultimately be a moderate positive for economic growth relative to a Trump win in both the short and long run."
2. Whatever the outcome, stocks are likely to experience periods of volatility while the winner is in office. A significant drawdown has occurred in every presidency dating back to Franklin Roosevelt, who came to office in 1932. That said, U.S. equities have rewarded investors with positive returns throughout 12 of the past 13 presidencies. (Remember, of course, that past performance is no guarantee of future results.) The only president who oversaw a negative market return was George W. Bush, who, coincidently, was in office during the tech bubble, 9/11 and the onset of the global financial crisis. (Source: RBC Global Asset Management)
3. U.S. economic growth, as measured by gross domestic product (GDP), has tended to grow at a faster pace under Democratic presidents – according to data dating back to 1947. This is the case even after neutralizing the effects of the last two economic crisis – the global financial crisis and COVID-19 pandemic – which both occurred under Republican presidents. (Source: RBC Global Asset Management)
4. "What's really important is for markets to see a pathway to stimulus and then eventually a vaccine," says Stu Kedwell, senior vice president and co-head of North American equities at RBC Global Asset Management. "The longer it take for stimulus, the more hardship that enacts," he adds. "Government support is very important to the economy until there is a [COVID-19] vaccine," Kedwell says.
5. At the end of the day, the pandemic will be the key focus for the U.S. leader in the short term, says RBC Deputy Chief Economist Dawn Desjardins. "All of the election issues, whether tax- or trade-related, will be overshadowed in the near-term by the size and timing of the U.S. stimulus package and dealing with the virus. All of the issues are important, of course, but that will be over the course of a four-year mandate," Desjardins said in a recent interview. For Canada specifically, "anything that stimulates the U.S. economy, of course, is a positive to the extent we are a major exporter to the U.S."

We’ll continue to follow closely the results of the U.S. election and what they mean for investors. Check Inspired Investor for the most recent updates and Investing Academy for investing-specific tools, guides and resources.