Likely, 2020 will be remembered more for the negative effects of the Coronavirus on the American economy than for the troubled presidential elections. However, just a few hours after the polls closed, the outcome of the election continues to be among the most uncertain ever. The delays in counting, due on the one hand to “missing” ballots and on the other to the prevalence of votes by mail, promise legal battles that will go beyond the announcement of the new President of the United States of America.

As of Midday (European time) the result of the US Presidential elections remains to be deciphered. Compared to the polls, as already happened in 2016, the Republicans’ performance exceeds expectations. If in the Senate the Democratic Party could increase its representation, in the House of Representatives a confirmation of the “sound” Democratic majority seems more complicated. Meanwhile, both candidates keep confindence in their victory in the White House race.

In the US, the total number of votes obtained at national level is not relevant. The representation of the Electoral College that will determine the election of the President depends solely on the victory in the individual state, based on the “winner-takes-all” principle. Each State provides a determined number of large voters based on population. The cumulative number of large voters obtained in the various States is therefore the only element that can be used to determine the appointment of the President. Different speech for the composition of the Senate, where each State expresses two representatives regardless of population.

As already happened for the last term of office, in fact, the probability of a democratic victory in terms of overall votes (50% vs. 48% as of this morning) is evident, but it may not be enough to obtain the necessary constituencies for the appointment of the President. Numbers in hand, the Republicans would seem closer to confirmation.

The large voters from a dozen or so states remain to be assigned. In two of these (Alaska and Pennsylvania) the “red” victory would seem almost certain; while Arizona would most likely be assigned to the “Dems”. North Carolina, Georgia, Michigan and Wisconsin could decide the fate of the elections with Trump ahead in the first two countries.

Uncertainty also prevails in the formation of the two houses of Congress. The risk of a political impasse remains relatively high, with the Senate projected towards a fair representation of the two parties, while in the House of Representatives the majority of Democrats could be less significant than in the last two years.

For the final result it will be necessary to wait a few days, especially because of Pennsylvania, which has decided to count the votes received by mail only from today. Moreover, the risk of legal battles over the truthfulness of the outcome and the procedures cannot be excluded; as already made clear by the outgoing President.

At the level of financial markets, the rally at the beginning of the week seemed to expose itself to a Dem victory in favour of sectors such as the Green Economy and the construction sector, as well as to a less aggressive foreign policy. However, it is worth noting that the American ten-year yield movement fell by about 10 basis points in the morning, a sign of a more uncertain than expected election outcome.

Beyond the Presidential victory, it will be interesting to monitor the margins in the two Houses. Substantial parity could make the decision-making process more complex by slowing down political choices. One of the most pressing issues remains the negotiation for agreement on the new fiscal stimulus, but it will probably be necessary to wait for the new political balances with the risk that the intervention will not materialize before the first months of 2021.

Moreover, the potential effects of the second wave of the Virus should not be underestimated, at least on a numerical level. While it is true that the economic recovery in the third quarter was sustained, the 2.0. lockdowns are affecting an increasing number of European countries. These interventions will almost certainly lead to a reduction in economic expectations for 4Q2020/1Q2021.

In terms of investment choices, it is considered premature to change the portfolio structure. Short-term volatility could remain high and the political impasse could prove to be the enemy of price lists.

The decision to slightly increase the cash component in the second half of October goes in the tactical direction of taking advantage of opportunities for a gradual repositioning in the coming months. Currently, we believe that the investment risk in some asset classes is not matched by a sufficient expected return or is significantly lower than in the past.

However, the support of Central Banks will continue to play a key role in the performance of financial markets.