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Investing in the financial markets, whatever your strategy, always needs to be done with one eye on the larger macroeconomic factors at play.
2020 has had no shortage of macroeconomic factors triggering different effects on every single market out there. While the pandemic has undoubtedly been the biggest shock to the global economic system that many investors will see for a lifetime, an American election result is always important enough to influence market movements every four years.
None more so than the result of Biden snatching the presidency from Trump at the beginning of November. So how has the news of the Democrat taking the Oval office affected the markets in the couple of weeks since it was announced? Here, we look at the short term effects and what that could spell for the future.
It is hard to deny that the markets reacted positively to the news that Joe Biden won the US presidential election. The world’s largest economy has such a big bearing on the global economy that the majority of markets surged upon the announcement. For example,the FTSE 100 went up by over 4%.
There will be a number of reasons that the market went up so emphatically. Firstly, investors will be calmed by what should be improved American China tensions that have characterised Trump’s term in office. While Biden won’t have an easy relationship with the Chinese government, the usual routes of diplomacy are expected to be followed.
Secondly, Trump’s chaotic approach to dealing with the Coronavirus in the US already looks set to be high on Biden’s list of priorities to solve. His approach will have the help of well timed vaccine announcements, but a calmer, more rational approach is what much of the population and businesses have wanted.
Finally, the Senate looks set to be held by the Republicans. The knock on effect is that many taxes and monetary policy laws will likely stay in place - giving a more stable backdrop for investors to make investment decions on.
While the markets all went up on the news of Trumps’s loss, it cannot be underplayed that they continued to surge due to announcements from Pfizer and Moderna that vaccine trials have produced hugely positive results. Both companies have seen their trials of their vaccines provide protection against the Coronavirus 90-95% of the time - offering some much needed good news at the tail end of 2020.
Perhaps not unexpectedly, Trump has yet to concede the race to be president. As a result, the lawsuits which he is threatening to open to contest the result and the counting of various votes in several states, looks to be a cloud that could hang over the global economy - acting as a distraction at best, wreaking havoc at worst.
In the shadow of the Coronavirus, the news cycle has been somewhat deflected from Brexit negotiations in 2020 - but that does not mean they are not going on or any less important. Both sides continue to give little in terms of ground, with Britain even claiming that breaking international law stated in the recent agreement could be broken if suitable terms cannot be reached at the end of the transition period.
The closeness of the victory by Biden shocked many pollsters, but even the slim win was enough for markets to react strongly. Whether his more tactful and traditional way of leading will produce any change will remain to be seen. However, the President-elect looks set to be helped by a COVID19 vaccine coming into play - helping the economy go back to full productivity in 2021 and beyond.
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