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Risk on: hours till US polls open

3 November 2020

Riskier assets are attempting a comeback, just hours before the US election polls are set to open. Benchmark US stock indices kicked off the week with gains, while Asian stocks are extending their advances on Tuesday. US equity futures are also pushing higher at the time of writing, trying to reclaim some ground after last week’s bruising selloff.

The S&P 500 is historically a reliable guide in predicting the winning political party. Should this benchmark stock index post a positive performance from July 31st until the even of polling day, that typically precedes a win for the incumbent. This trend has proven true in all but one of the last nine US presidential elections.

Following Monday’s rebound, the S&P 500 now has a 1.2 percent advance since July 31, 2020. If this trend proves right once more, it indicates a win for the incumbent, President Donald Trump, and would prove the S&P 500 to be a more reliable forecaster than the national polls which have Joe Biden in the lead.

Of note, Monday’s climb in the S&P 500 were led by energy stocks such as ExxonMobil and Chevron, as Big Oil stocks tracked the overnight gains in global oil benchmarks.

Oil prices rose on Monday, as investors mulled signs that OPEC+ may delay their intended easing of output cuts in January. Still, Oil remains suppressed by a global economic recovery that has been hampered by the reinstated lockdowns across major European countries, while the US continues to see stubbornly elevated Covid-19 cases. The rising output from Libya is also stoking oversupply concerns.

At the time of writing, Crude Oil is paring some of Monday’s gains while battling with its 200-day simple moving average as a resistance level. Oil’s downtrend from the past two months is still very much intact despite Monday’s gains.

Overall, there’s no escaping the fact that the US election will be the primary guide over market sentiment for the near-term. However, given that the official results may not be known for another few days, or potentially even weeks after polls close on November 3rd, investors are expected to remain patient in the interim, even as they crave immediate certainty over the US political outlook.



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