Posted in: Market NewsOpinion
Published:
January 12, 2020 3:00 PM

Analysts Say the Election, Not Iran, Will Cause a U.S. Stock Market Crash

Author: Laura Hoy
  • The 2020 Presidential Election is the greatest risk to financial markets, according to Eurasia Group.
  • Uncertainty following the result, no matter what it is, could weigh on the U.S. stock market.
  • The US could enter a period of instability and uncertainty similar to what the UK experienced after the Brexit vote.

After a stunning end-of-year rally, the U.S. stock market screeched to a halt on news of rising tension in the Middle East. Donald Trump’s airstrike that killed a key Iranian general has created a wave of uncertainty among investors, leading many to question whether this is the stock market crash we’ve all been hearing about.

While there’s certainly no denying that equities are ready for a large-scale correction, this probably isn’t it. While Trump’s decision to kill General Soleimani is seen as a major turning point for Iran’s relationship with the West, it’s not the biggest risk facing financial markets. Instead, argues Eurasia Group, we should be far more concerned about the upcoming election.

While both Trump and Tehran agree that an all-out war would be in no one’s interest, the same can’t be said for Democrats and Republicans this election cycle. Eurasia Group says the 2020 election doesn’t appear to have a positive outcome—no matter who wins, chaos will ensue.

Election Fog to Cloud US Stock Market

The group likened the 2020 U.S. election to the “Brexit fog” that has put a damper on UK markets in recent years.

When the UK voted to leave, the ensuing chaos left the nation in a ‘fog’ of uncertainty that’s lasted more than three years. No one could agree on how to move forward, which hurt both business and consumer confidence and made it difficult for the central bank to make accurate forecasts about the future.

Eurasia Group sees similar problems arising in the U.S. following the November election.

The November election will produce a result many see as illegitimate. If Trump wins amid credible charges of irregularities, the result will be contested. If he loses, particularly if the vote is close, same.

Post-2020 Election Concerns

A divided United States will hurt stocks no matter who wins. | Source: AP Photo/Carolyn Kaster

Divisive is the word used to describe the political environment in the U.S., with some going as far as questioning whether it will end in an all-out conflict between the two sides. Trump’s former lawyers Michael Cohen has already warned that Trump is unlikely to lose gracefully.

I fear that if he loses the election in 2020, that there will never be a peaceful transition of power.

Democratic candidates have been outspoken about their contempt for Trump, begging the question of whether or not they’ll be willing to accept his re-election.

This wouldn’t be the first time an election is called into question. Back in 2000 a legal battle over the voting results in Florida lasted for a month following the election. In the end, a close 5-4 Supreme Court ruling ended the ordeal.

At the time, the battle divided the nation—but in today’s climate that kind of dispute could boil over into something far more serious.

Analysts Divided Over Outcome Impact

Analysts are split on how the markets will react to potential election results. With the Democrats still deciding on a candidate it’s too early to make predictions. Still, this election appears to be a battle of extremes between the far left and the far right.

Predictions about how each candidate could impact the market have been split. | Source: REUTERS/Mike Blake

Andrew McCaffery of Fidelity International told Financial Times that 2020 may offer a “moment of reckoning” as electoral concerns push investors to take their money out of U.S. stocks and into emerging markets.

Goldman Sachs noted that there’s more to it than just who becomes president:

In the United States, equity returns during periods of divided federal government have typically exceeded returns achieved when one political party controls the White House, Senate, and House of Representatives. Since 1928, excluding recessions, when the federal government was controlled by a single party, the S&P 500 median 12-month return equaled 9%. However, the median return under a divided government was 12%.

In any case, it’s worth considering that the U.S. stock market could be doomed no matter who wins—at least in the short-term.

Disclaimer: The opinions expressed in this article do not necessarily reflect the views of CCN.com.

This article was edited by Sam Bourgi.

Last modified: January 30, 2020 8:55 PM