Wall Street is poised to closely monitor critical swing states in the United States as election day progresses into the ballot-counting phase, with market fluctuations expected amid the uncertainty until a decisive result is established, as indicated by market analysts. The benchmark Standard & Poor's 500, which has risen by 20% so far this year, recorded marginal increases early Tuesday, alongside slight gains for the tech-heavy Nasdaq and the prominent Dow Jones Industrial Average.
Vice President Kamala Harris, the Democratic presidential nominee, holds a narrow lead over Donald Trump, the former president and Republican candidate for the top position, based on the RealClearPolitics national poll average. "The US presidential election is likely to be determined by a few thousand voters spread across essential swing states," noted Wells Fargo Investment Institute in a recent communication. Key swing states comprise Arizona, Georgia, Michigan, Nevada, North Carolina, Pennsylvania, and Wisconsin.
Notably, RBC Capital Markets has included Iowa in their list of states to watch, following an unexpected opinion poll indicating Harris's lead over Trump in that area. Analysts expect it may take several days for the final election results to be confirmed. Various scenarios for the outcome may lead to political divisions between those in charge of the White House and Congress, or conversely, a single party controlling all branches of federal government. "One of our foundational beliefs regarding elections and the US equity market is that temporary repricings are inevitable around this event every few years, yet these dislocations are typically short-lived," stated RBC analysts, including Lori Calvasina, head of US equity strategy, in their Tuesday note.
"Historical analyses of our playbook reveal that the S&P 500 tends to experience growth regardless of the political balance in Washington." Should Harris secure the presidency with a divided Congress, analysts at Morgan Stanley predict that "consumer equities exposed to tariffs and renewable energy sectors will outperform in the short run." Conversely, if Trump wins with a divided Congress, "the initial market reaction may slightly favor quality cyclicals, although leadership could shift soon after results are made public." The potential for an extended delay between voting and a conclusive outcome is weighing on investors, as RBC pointed out. "Concerns about a prolonged contested election are legitimate, given that the 2000 election saw the S&P 500 decline nearly 12% between election day and its December low," analysts noted.
The narrow margin between George W. Bush and Al Gore caused disputes over ballot recounts that ultimately reached the Supreme Court. In contrast, Joe Biden's victory over Trump in 2020 wasn’t definitively known until the Saturday following election day. "Market volatility may accompany delays in announcing election results, but this volatility typically diminishes as the economy quickly re-establishes itself as the primary influencer of expected earnings," stated Douglas Beath, global investment strategist at Wells Fargo Investment Institute, in a recent note.
"While a delayed election result is feasible, we do not foresee such delays having a lasting negative impact on equity prices beyond a brief period of volatility." With a Federal Reserve interest-rate decision scheduled for Thursday — and a 25 basis-point cut deemed almost certain on the CME FedWatch tool — analysts suggest that investors will likely shift their focus rapidly post-vote. "The anticipated rate cut from policymakers is expected to redirect investor attention to the crucial elements of the market: the immediate trajectory of interest rates and the economic landscape heading into 2025," added Beath in his evaluation..