“A drawn-out contested election with lawsuits and recounts would hurt the market in our view,” Citigroup chief market strategist Tobias Levkovich wrote in a note Monday.
America is more divided than in 2000
But there are major differences between that contested election and today’s situation that make this one more precarious.
First, the United States is much more divided today than it was two decades ago. That raises the risk that anger over the election spills over into the streets.
“The biggest risk to markets is a violent response to whatever Tuesday night and Wednesday bring,” said David Kotok, chief investment officer of Cumberland Advisors. “Markets don’t like violence.”
“In 2000, there wasn’t widespread unrest in the country. This time, there is a risk that protests could get out of control,” said Greg Valliere, chief US policy strategist at AGF Investments.
“While Americans have grown used to a certain level of rancor in these quadrennial campaigns, they have not in living memory faced the realistic prospect that the incumbent may reject the outcome or that armed violence may result,” threat trackers at the International Crisis Group wrote.
Trump is not Gore
That chilling warning highlights the second big difference: the Trump factor.
The 2000 recount between Bush and Gore featured two mainstream, establishment politicians with long histories of holding office. There was never a real doubt that one would concede, eventually. Trump, on the other hand, has repeatedly shattered historical norms and cast doubt about the integrity of the election.
“Trump has made it clear that he would challenge any result that he disagrees with,” said Valliere. “Gore conceded because that was the right thing to do. If it’s shown that Donald Trump actually lost, I’m not persuaded he would be a good loser. He’d be a sore loser.”
It’s hard for investors to assess how Trump would respond to a clear loss.
“Donald Trump has never conceded anything,” Kotok said. “The Trump factor is unique in a presidential transition of power. In 2000, the rule of law and the system prevailed. No one can forecast what is going to happen now, but my hope is that system will prevail again.”
Relief rally if a decisive winner emerges?
Another major difference from 2000: Unlike then, investors in 2020 have been bracing for post-election chaos for months.
“The 2000 election was expected to go like any other. And then you had hanging chads in Florida,” said Randy Frederick, vice president of trading and derivatives at Charles Schwab. “Markets tend to be very unhappy when surprised. But this time, everyone is expecting it.”
That suggests investors could celebrate if the nightmare is avoided and a clear winner emerges Tuesday night or early Wednesday — no matter who it is.
“Markets would soar on either outcome,” said Kotok. “The rally would be sustained and substantial. And it would be worldwide because it would be a relief from uncertainty that has been so emotional, passionate and intense.”
The next few days could bring about a flurry of confusing and conflicting headlines, especially about potential legal fights.
But Nicholas Colas, a Wall Street veteran and co-founder of DataTrek Research, expects markets to look past spurious lawsuits that have little chance of changing the outcome.
“The market will have a high-quality BS meter on lawsuits from both sides,” said Colas.
He also expressed cautious optimism that this election will get sorted out, just like all the ones before it.
“The country has over a 200-year history of peaceful transfer of power,” said Colas. “I don’t think it will end on November 4, 2020.”