Powell

After all the brouhaha and finger pointing, this week there will be a winner. At least, that’s what markets hope – indeed, what they crave. A long, drawn out lawyer-fest, rich in legal speak and itchy accusations this way and that, is not what is needed as Covid cases surge and many developed markets shut down for November. It may be lockdown-lite in many regions but the growth slowdown is almost audible. Calling the election so close to the wire, then, is more the cut of the pollsters eager for a pitch on CNBC, but for investors distance is, as ever, the best position. Whether there is a sweep, a lame duck or a white rabbit out of a MAGA cap, the result may well alter the expectations of further stimulus and the associated sugar high, but what else will change? When it comes to Fed policy, not much. The Fed, as set out in lights at the Jackson Hole v-meet, is driven by the new flexible average inflation targeting framework. That’s the plan, and the election result is not going to change that. Rates are low, and staying low, perhaps for many years. Whoever sits in the Oval Office, lining up a four-year term, is not going to be bad-mouthing the Fed’s in-it-to-win-it policy approach. Whilst the Fed will further juice the balance sheet with another round of QE should the outlook deteriorate, that outlook does rest on what any fiscal stimulus will look like but, either way, the suits are certainly likely to be the same. Powell has a good relationship with both parties and there appears a general consensus that he has played the crisis with soft hands. He’s done well. Biden might want someone a bit more liberal in time, but will probably have other items higher up on the to-do list. Trading the volatility of any election result may offer some short-term fun, but what drives markets long-term is, in large part, the exertion of the Fed. And that won’t change. They’re all in. The lagged effect of all the pandemic-related stimulus, in the context of the upcoming read out of some promising vaccine trials, suggest that any equity upside in 2021 is not going to be upended by the election result. Whatever the colour.