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Investors fear US election won't be decided for weeks -- or even months

Posted September 21, 2020 2:19 p.m. EDT

— Investors are trying to figure out what's ahead for the stock market -- much of which will depend on who's elected US president. But it could be weeks or even months before one of the candidates concedes, according to new research.

Only 16% of a team of "superforecasters" -- analysts with particularly good track records -- polled by the firm Good Judgment think President Donald Trump or Joe Biden will concede by the end of election week, says CEO Warren Hatch, who shared data exclusively with CNN Business.

Another 43% predict there won't be an official winner until Thanksgiving. And 37% of the global market and economic superforecasters -- whom Good Judgment doesn't name -- think a concession will come sometime between late November and Inauguration Day on January 20, 2021.

The growing worries about a lack of election outcome clarity for some time could lead to further volatility on Wall Street and make the disputed 2000 presidential race look like child's play.

The remaining 4% said the election outcome may still not be clear by Inauguration Day. In that event, the House speaker, currently Nancy Pelosi, could become president.

What should investors do if there's no election outcome until early 2021?

Market experts say not to panic. Although the uncertainty could be damaging to the market (and perhaps the broader economy) in the short term, there will eventually be an official outcome to the presidential race. Then it will be time for Washington and Wall Street to get back to business.

And history shows that cashing in on stocks just after an election is a bad idea -- no matter what the outcome.

According to data from Brian Levitt, global market strategist at Invesco, investors who stayed fully invested in the market after elections since 1980 did much better than those who got out of stocks during the first 100 days of a presidential term.

Levitt found that a $10,000 investment in the S&P 500 led to a return of $324,000 over the past forty years, versus a return of just $169,000 if investors sold stocks and sat out the beginning days of a president's first or second term.

In other words, investors shouldn't be scared off by political uncertainty.

A post-2016 world

The 2016 election completely upended the normal relationship between Wall Street and Washington, with many investors assuming Hillary Clinton would win. Once it became clear that Trump was the victor, there was a brief panic in overnight futures trading followed by a solid move higher.

"There is a growing consensus that America will be in turmoil if we have a close election or a Biden victory, but I doubt that the majority will be correct," said Mark Chalkin, founder of Chalkin Analytics, in a report. "Looking back to 2016...we got a Trump victory and a strong rally...so much for the market's ability to predict election results."

This isn't to say that politics don't matter at all for investors. But the big difference between 2020 and 2016 is that the economy is now in a pandemic-fueled recession. Four years ago, the economy was in the midst of an expansion, albeit a slow one.

That's why most market experts and economists feel that it is key for Congress and President Trump to quickly come to an agreement on more financial aid to help struggling consumers and businesses sooner rather than later. But that might not be in the cards.

Good Judgment's Hatch said 65% of the forecasters they tracked said there will be no progress on new fiscal stimulus until sometime after the new year.

But the American economy needs help now. One strategist said lawmakers and the president need to put aside political differences and worries about spending more money aside in order to tackle the most pressing concern for consumers.

"While the exploding deficit is a long-term concern, super low bond yields argue that this is a discussion for another day. Spend the money now -- America is watching and waiting," said Julian Emanuel, BTIG chief equity and derivatives strategist, in a report.

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