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LGT Navigator: US election becomes a fear factor for investors

September 28, 2020

Less than six weeks before the US presidential election, there is growing concern about whether the race for the White House will be effectively decided on November 3rd. President Trump seems willing to turn everything upside down and not accept anything but his own victory. For the capital markets, this uncertainty is likely to become more and more of a burden. On Tuesday, the two opponents crossed swords for the first time directly in the first TV debate. However, the demand for technology stocks caused a recovery on Wall Street on Friday.

US election becomes a fear factor for investors

Despite the political and economic uncertainties, the ongoing dispute over the Corona aid package and the still fragile pandemic situation in the US, the New York stock market indices closed the week with a solid daily gain on Friday after a weak start to trading. The Dow Jones Industrial closed the week with a plus of +1.34% at 27 173.96 points, but still posted a weekly loss of almost -2%. The market-wide S&P 500 increased by +1.62% to 3 298.46 points. The recovery on Friday was driven by the revived demand for technology stocks. The technology-heavy Nasdaq 100 index achieved a daily gain of +2.34%. Europe's stock markets had recorded further losses before the weekend. For the first time since mid-June, the EuroStoxx fell just below the 3 100 points mark and closed the day down -0.71% to 3 137.06 points. Over the week, the European benchmark lost -4.4%. On the Asian stock markets, the gains on Wall Street provided a largely positive start to the week. In Tokyo, the Nikkei index, which comprises 225 stocks, rose by around +0.8%. For the European stock markets, the futures signal a very firm opening.

Trump continues to sow doubt and nominates Chief Justice

Meanwhile, the US president continues to sow doubts about the upcoming presidential elections. On Friday Trump tweeted: “The Democrats are manipulating our 2020 election!“ The President has repeatedly stated that he can only lose the election if there is election fraud. Last week Trump refused to guarantee a peaceful transfer of power in case of defeat. Anything less than a crystal-clear victory for Democratic challenger Joe Biden is likely to become a major factor of uncertainty and fear, especially for the financial markets.

As announced, US President Trump took the initiative at the weekend and nominated his candidate for the vacant position in the Constitutional Court. According to Trump's plans, lawyer Amy Coney Barrett (48) should possibly consolidate the conservative majority in the Supreme Court for decades to come. She is expected to take office before the presidential election on November 3 and could then become a decisive factor in an extremely close race to decide who will sit in the White House in the future.

Brexit negotiations in a decisive phase

This week the difficult negotiations between Brussels and London will continue. The EU Commission will urge the United Kingdom to comply with the valid exit agreement before the last round of negotiations on the treaty, which is to regulate trade relations in future, begins on Tuesday.

Recovery in US industry continues, but loses momentum

Orders for so-called durable goods (products that have a service life of at least three years, such as machines or aircraft) increased in the US in August for the fourth month in a row. Compared to the previous month, orders increased by +0.4%, but this was significantly less than analysts had expected with +1.8%. In the previous month, orders had increased by +11.7%. Orders for civil capital goods excluding aircraft, which are considered to be an important indicator of corporate investment, rose by +1.8% in August, following a plus of +2.5% in July.

Call for review of ECB inflation target

The head of the French central bank, Francois Villeroy de Galhau, is calling for the formulation of the inflation target to be questioned in the current strategic review of ECB policy. Currently, the ECB is aiming for an inflation rate of “below but close to two percent“ in the medium term. However, the central bank has been failing to meet this target for years despite its continued ultra-expansive monetary policy. According to the head of the Banque de France, the target must be understood symmetrically and not as an upper limit. This means that the ECB could well allow an inflation rate slightly above the target for some time. The central bank should not only discuss the precise wording, but also how the inflation rate is measured, said Villeroy de Galhau.


Economic Indicators September 28

MEZ Country Indicator Last
15:45 EZ ECB Lagarde Hearing European Parliament  
16:30 US Dallas Fed Manufacturing Activity Index  +8.0

Earnings Calendar October 6

Country Corporate Period
SZ Aryzta Y


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Source: LGT Bank (Switzerland) Ltd.

Risk Disclosure (Disclaimer)

US employment growth remains dynamic at the beginning of the year