No more bets — stock and gambling markets rally as U.S. election nears end

·5 min read

Financial markets rallied to their best day in months on Tuesday as months of uncertainty as to who will win the U.S. presidential election comes to an end, even as the prospect of a lengthy vote counting process begins.

The S&P 500, the Nasdaq and the Dow Jones Industrial Average were all up by two per cent or more in the afternoon, and Canada's benchmark stock index, the TSX Composite Index, was only slightly below that mark.

The relief rally was less about the prospects of any specific candidate winning and more about the end of a period of uncertainty — even as another one could be about to begin.

"This week's gains so far appear to be driven by a sense of relief among investors that the long and divisive U.S. election campaign is finally over," said Colin Cieszynski, chief market strategist with SIA Wealth Management in Toronto.

In broad strokes, a Joe Biden victory is seen as being good news for alternative energy companies, infrastructure firms, cannabis companies and the market overall as it increases the likelihood of more stimulus spending, which would put more money into the pockets of investors and the economy.

Many investors expect a "Democratic sweep, which is the key to unlocking Congress's ability to deliver significant fiscal stimulus," said Stephen Innes of Axi in a report.

A Trump win, meanwhile, is seen as a positive for oil and gas companies and financial firms, both of which have seen regulations loosened under his first term as U.S. president.

The price of the North American crude oil benchmark known as WTI gained more than $1 or almost three per cent to change hands at 37.82 a barrel. The Canadian dollar was up about three quarters of a penny, at 76.24 cents US.

Indeed, just about everything was higher on Tuesday, a sign that investors are pouring money into a brief relief rally almost no matter the outcome of the vote itself.

"The markets are neither red nor blue, and today they're decidedly green," said Rod von Lipsey, managing director at UBS Private Wealth Management.

Polls have Democratic nominee Joe Biden a favourite to win, but that was the case with the Democrat four years ago, too, when Republican Donald Trump eked out a narrow electoral college victory to take the White House.

Despite plunging the day after he won, the S&P 500 has gained 55 per cent under Trump's administration.

Contested election possible

They may not mind much who wins, but what investors fear most is the prospect of a contested election, one that drags on and injects even more uncertainty into markets. Much of Wall Street expects a sharp drop in stocks to happen should neither candidate get the 270 electoral college votes they need to win outright.

While a long and no doubt acrimonious delay would be the worst-case scenario for some, Cieszynski thinks it would not necessarily wallop financial markets.

"While there could be civil unrest following the vote, the experience from earlier this year suggests protests may capture more attention from the media than from the market," he said.

More bets on Trump, but bigger bets on Biden

Stock market investors aren't the only speculators trying to profit off the U.S. election.

Tuesday's vote is a major event for the gambling community, and the 2020 U.S. election has already shattered the record for being the most bet-on event in history, said Peter Watt with UK-based odds-comparing site Oddschecker.

The 2016 election saw $257 million US bet on the outcome across various legal betting websites, which was at the time a record. That figure was passed two weeks ago and as of Tuesday afternoon, gamblers have placed 322 million pounds on the outcome of the vote — that's more than $420 million US.

"It's a huge amount," Watt said in an interview.

The polls favour Biden, and for what it's worth, so do the gambling markets. But the spread isn't quite as wide. Watt says based on bet flows, gamblers think there's slightly more than a 65 per cent chance of Biden winning. Trump's odds, however, are still one in three. "Trump is definitely an underdog but bettors are predicting it to be a much closer contest," he said.

An interesting trend he's observed is that many more people are betting on Trump to win, but the bets themselves are for smaller amounts. Biden bets, meanwhile, are fewer in number but larger in their amount. That includes a 1 million pound bet on a Biden win — that's more than $1.3 million US — by an unnamed bettor on British website Betfair this week.

"It's the largest political bet ever placed," Watt said.

Alex Edelman/AFP/Getty Images, Joel Kowsky/NASA/Getty Images
Alex Edelman/AFP/Getty Images, Joel Kowsky/NASA/Getty Images

Regardless of the outcome, the gambling community has already started going all-in on the winner of the next U.S. presidential election, in 2024.

Joe Biden is the betting favourite to win that one, tied with current Vice-President Mike Pence.

The next most likely winner is Biden's running mate, Kamala Harris, followed by New York Congresswoman Alexandria Ocasio-Cortez in fourth place.

In fifth place? Donald Trump.

That speaks to the current president's status as a "firebrand" around the world, as Watt describes him, and shows just how much interest there is in one country's domestic politics.

"This may be an American election, but essentially it's a free world election," Watt said. "The consequences are so incredibly far-reaching."