Ugly Presidential Debate Creates More Uncertainty while Generating ‘Risk-Off’ Response

Presidential candidates Donald Trump and Joe Biden squared-off Tuesday night stateside in their first national debate. The reaction in the financial markets indicates Wednesday is going to be a “risk-off” session.

Who can blame investors? Nothing was learned. From the get-go the two faced-off in what some described as a 90-minute brawl. Others said that hardly a minute went by without one of the candidates angrily interrupting the other, whether on the coronavirus pandemic, the Supreme Court, the economy or anything else, including each other’s families.

So what did we learn? Nothing. Judging from the markets’ reaction, more uncertainty was created. And when there is uncertainty, investors sell assets.

Dow Futures Fall 300 Points after US Presidential Debate

The major U.S. stock indexes are under pressure early Wednesday morning as traders digested the first U.S. presidential debate.

“Futures rose slightly during the debate, but quickly gave up that ground as the debate ended. It wasn’t clear whether the gyrations were related to the contentious comments being traded back and forth by the candidates. Traders are hoping that the start of the debate process will lead to a clear winner on Election Day and not a drawn-out electoral process that could hit the market,” CNBC said.

Investor Worries

Last night’s debate was probably an ugly experience for most investors. I don’t think anything was said that changed peoples’ minds about either category.

Going into the debate, Biden held an average lead of 6.1 percentage points in recent polls, according to RealClearPolitics, and I don’t expect that number to change much after Monday’s showing.

If anything, it solidified one of the biggest fears for investors – this thing isn’t going to be over on November 3. Trump did not look like a man who would walk away from the White House peacefully if he lost.

The volatility we are seeing in the early go on Wednesday could become the norm over the next month or so because this debate didn’t solve anything and future debates probably won’t either. In fact, they are probably going to create even more uncertainty.

Analyst Reactions

Shane Oliver, Head of Investment Strategy, AMP Capital, Sydney said, ‘I didn’t see a lot in there on the policy front to change things fundamentally from what was already known.”

“The share market normally prefers the incumbent to win. U.S. futures initially rose – as perhaps Trump delivered some punches – but it wasn’t enough and I thought Biden did pretty well and so it’s no surprise to now see U.S. share market futures down as investors have gone back to worrying about a contested election, a delay in the outcome and whether Trump will go peacefully if he loses.”

Finally, Phil Blancato, President, Ladenberg Thalmann Asset Management, New York said, “This was an emotionally charged debate and both sides have strong convictions.”

“A Trump victory will lead to a reduction in spending due to the large deficit but not tax hike and less headwinds for the market and an opportunity in value stocks as the economy strengthens.”

“The investment implications should Biden win would have to deal with a tax impact at the personal and corporate level which will bring volatility to the market, but long term could represent an opportunity in healthcare and alternative energy.”

For a look at all of today’s economic events, check out our economic calendar.