Election Results and the Future of the Stock Market

Disclaimer: this is a completely APOLITICAL analysis based solely on facts and my personal insight.
This is not financial advice. This is for educational purposes only.

In this post, I'll be discussing the current situation of the US presidential elections, and the market outlook depending on some of the probable cases.

Election Results
- To begin with, the election got complicated as Trump suggested the possibility of it being rigged.
- He is asking for transparency of mail votes, and wants to settle the result in the supreme court.
- Probable cases can be classified into three big categories:

1) Biden Wins
- Based on the current result, and the poll results of the past, Biden ultimately winning the election wouldn't be a surprise
- If matters are not taken to the supreme court, everything should go as initially planned

2) Trump Wins
- The same story applies to Trump;
- Had he not attempted to settle matters through the supreme court, what we could expect for Trump's winning situation is the following:
- All votes are counted, and trump eventually wins over 270 votes.
- While this is very improbable, it's not impossible.

3) Results Delayed
- This is the situation we are faced with today
- Trump wants the supreme court to settle the election, and to do so, the election results need to be delayed to his favor
- Trump may have a strategic advantage over Biden, should his Plan B work out.
- However, whether matters will be taken to the supreme court is unclear yet, as Trump's claims have very little to no base.

So What About the Market?
I'm sure the big question you might have in mind is:
So what's going to happen to the market?
What would be best for the market to remain bullish as it is?

Based on the information available so far, it seems that Biden as president, and a republican dominant senate would be the most probable scenario.

As people get a better grasp of what the potential outcome of this event, uncertainty, doubt, and fear induced through market psychology has diminished significantly.
The S&P 500 Index (SPX) has risen, while the Volatility Index (VIX), also known as the fear index, has decreased significantly.
This demonstrates that people weren't necessarily afraid of Biden becoming president. They were worried about the uncertainty of such event having an impact on the market.

In regards to the most probable outcome at the moment, where we have Biden as president, and a republican dominant senate, this might be the best case for the market over the long run.
The republican senate will be able to keep in check with , and neutralize Biden's rather radical stimulus packages and fiscal policies.
The infrastructure package will also be implemented as planned, but possibly in a reduced manner.
Overall, some of the policies we see will be democratic, and others will be republican. This gridlock that we might face, where both parties have each other in check at an equilibrium, might be the best case for the economy, and the stock market.

Statistical Evidence
- To begin with, we can see that the red graph demonstrates how the market return increases over time, during a presidential term.
- Taking this into account, we can look at the Average Growth of Composite Index, which organizes the market returns depending on the political situation
- It calculates the average return over 4 years
- Statistics demonstrates cases of: a republican president, a democratic president, a republican sweep (red wave), a democratic sweep (blue wave), a republican and democratic divided congress.
- We can see that the case for the democratic divided congress, which is the current scenario with the highest probability, demonstrates the highest market returns
- There were 6 cases in which this political setting took place:
- In recent cases, it was the example of the Obama administration in 2012, and the Clinton administration in 1996
- Both cases reported extremely high returns in the stock market.
- However, at the same time, it's important to remember that there have only been 6 historic cases, and anomalies can always take place

Conclusion
There are a few things to take away from the statistical data, and probable scenarios regarding America's political setting.
1. The market doesn't dislike democrats. They dislike uncertainty and fear.
2. The gridlock created by a democrat president and a republican senate is a bullish sign for the economy.
Combining all the information above, we can expect this current bullish rally to continue further, as the dust settles.

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