Will a Contested Election Crash the Market?

Stocks are rising again this morning as investors watch swing states report new vote tallies. Bulls don’t seem to care who wins the election.

They just want to make sure that Biden’s tax plan – including the elimination of capital gains – doesn’t get approved. And with a Republican Senate, the status quo should remain, no matter how hard Biden would try to force his new plan onto America.

“It looks likely that we’ll see a split Congress, which, based on history, has been the preference of the stock market,” explained Ally Invest chief investment strategist Lindsey Bell.

“You can see this expectation being priced into the market [Wednesday] with health care, communication services and technology stocks are leading the market.”

Brad McMillan, chief investment officer at Commonwealth Financial Network, says Big Tech should be shielded from further regulation as a result of the presumed election outcome.

“With no blue wave, we are likely to see the Senate remain very closely divided, which will constrain the policy options of whoever wins the presidency,” McMillan said.

“That probably rules out any substantial activity on taxes, as well as limiting any actions to control the major tech firms.”

Trump insists that rampant voter fraud in Michigan and Arizona ended up costing him both states. Evidence from GOP poll watchers and other polling location observers showed that POTUS may have a case. In a video out of Arizona, poll workers were seen doling out sharpie markers to voters instead of pens.

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Election officials are unsure whether the sharpies invalidated ballots or not. The Arizona AG is currently investigating the matter.

Meanwhile, in Michigan, photos of voting records revealed that several voters had “1/1/1900” listed as their dates of birth. Democrats claim it’s a clerical error. Republicans say it’s fraud and an attempt to “raise the dead.”

Whichever turns out to be true, it (along with other evidence) will likely be enough for Trump to contest the results of the Michigan election. He’s already deployed his team of lawyers, led by former New York Mayor Rudy Giuliani, to Pennsylvania. Michigan’s next.

That hasn’t bothered investors, though, who continue to snap-up stocks.

“Markets are reacting very positively to the fact that a great deal of the election uncertainty has passed. Not all of it, but at least the worst outcomes seem to have been avoided,” Commonwealth Financial Network’s McMillan said.

“Markets hate uncertainty, and this is likely to be a tailwind for a while.”

And so, like at the height of the Covid-19 pandemic earlier in the year, it may behoove traders to keep buying until equities finally “blink.” There was ample reason to sell back then.

But instead, stocks kept rising alongside infection totals, just like they’re currently doing as the new number of U.S. daily cases crests 100,000.

It’s a hard thing for the market to wrap its mind around. Strong Q3 earnings have lifted sentiment for the time being, but if an “uncertainty bomb” is dropped on stocks via the election, expect that goodwill to evaporate in a hurry.

Even with a big potential stimulus package, scheduled for a late 2020 vote, waiting in the wings.

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