Less than two weeks before the elections, the United States looks divided, and there is no clear notion of what will happen after November 3, the Election Day. Joe Biden is indeed leading in the polls against incumbent president Donald J. Trump.

Still, the same happened four years ago, when Hillary Clinton led over Trump for almost all the 2016 campaign, but she lost the presidency.

The situation and uncertainty have markets with a kind of risk aversion as investors have decided to do nothing ahead of elections, especially when few external factors affect the economy and the electoral decision: the US stimulus package and the COVID-19 pandemic.

Wall Street now sees 70 percent of probabilities that Joe Biden will be the next president of the United States, and also the 75 percent of the odds say that the Senate will change from red to blue.

However, the margins are not that wide, and anything can happen when Americans decide to go to the polls. Will the market see a blue wave or another Trump's surprise? Only time will say.

Finally, we should understand the levels of uncertainty Trump added to markets after saying that he doesn't know if he would accept his defeat in the case he doesn't win the reelection. "We will see," Trump said, adding the case for a long contested election battle in the American union.

Where we are right now - Polls suggest a Biden's victory

According to the Real Clear Politics Poll Average, Democratic candidate Joe Biden leads the race with 50.7 points, 7.9 points over Trump’s 42.8.

The incumbent president has managed to reduce its difference with Biden by slightly more than a point since October 12, but the gap still looks big. However, as mentioned earlier, that happened in the past. It takes more relevance when a study from Cato Institute found in July this year that 62 percent of Americans say they have political views they are afraid to share.

"50% of strong liberals support firing Trump donors, 36% of strong conservatives support firing Biden donors; 32% are worried about missing out on job opportunities because of their political opinions," the study said.

In that line, Chief Investment Strategist at SPDR, Michael Arone, suggested in an interview with Fortune Magazine that polls are becoming less reliable when talking about the current presidential and Senate race.

"That contributes to the tendency of the polls' becoming less reliable," Arone said. "Just look at the two most consequential votes of 2016. The polls indicated that Brexit would fail and Trump would lose."

As a follow-up, Arone considers the COVID-19 pandemic as a more trustable poll than the surveys itself as the number of coronavirus cases has been linked to the popularity of both candidates.

"The 2016 election is unique; it's a unicorn," Arone explains. "That's because it's the COVID-19 election."

In 2020, Biden's lead goes wider when the pandemic spreads, while it contracts when cases decrease. "It's clear people don't think Trump's done a great job with the pandemic. But when the hotspots in the Sunbelt got better and fatalities trended lower, the polls narrowed."

COVID-19 daily cases at highest levels since July

Although President Trump has repeatedly affirmed that a COVID-19 vaccine will be ready soon, the truth is that there is no confirmed date for that. Also, the novel coronavirus cases are rising in the United States again, and it seems a matter of time that the third wave of patients would be confirmed.

With over 223 thousand people killed by the COVID-19 virus and more than 8.4 million cases confirmed, the United States is the most affected country in the world, with around 70 thousand new daily new cases according to the COVID-19 Dashboard by the Center for Systems Science and Engineering at Johns Hopkins University.

It is especially critical in battleground states where the race is still too close to see any favorite. Among the states with the closest races, Texas, Florida, North Carolina, Arizona, and Ohio are experiencing significant increases in COVID-19 cases in the last weeks.

Source: COVID-19 Dashboard

So, long story short, if the number of cases is connected to voting, we can think that Biden has all the odds to win. However, the lowering rate of mortality must be noted and traders shouldn't forget what happened four years ago and Donald Trump's ability to put his bases and the Republican party electoral force in motion.

In that framework, the announcement of a confirmed and approved COVID-19 vaccine before the elections would be a massive boost to Trump's possibilities for reelection. It would be Trump's October's surprise that would put the race closer.

Biden Vs. Trump, the story of two United States

Donald Trump's America would be significantly different from the United States lead by Joe Biden. It is clear. Both candidates want to cut unemployment, boost economic growth, and prepare the US for the future. However, their approaches are very different.

In line with Trump's promise of additional tax cuts would be offset by the necessary cuts in government spending to reduce the excessive debt to GDP ratio caused by COVID-19 stimulus packages and Federal Reserve measures.

While Trump wants to fuel the economy by reducing taxes and regulations, Biden believes in government spending and investment.

Biden's plans would boost GDP growth but also public debt. "In the long run," analysts at Rabobank says, "we expect the US economy to be larger by 3.8% to 4.6% due to the Biden plan tapping into the endogenous growth potential of the economy. However, we expect public debt to arrive at somewhere between 164% and 170% of GDP, which is much higher than the 147% in our baseline scenario."

On the other hand, Rabobank says that Trump's plans would put more money into people's pockets. "The tax relief in the Trump administration's plans results in a rapid pickup of real personal disposable income in the aftermath of the corona crisis from $43,350 per capita by the end of this year to roughly $47,000 in 2025, which is $1,000 more than in our baseline."

Rabobank also considers that Biden's employment plan would reduce the jobless rate more effectively and create more jobs than Trump's agenda.

Finally, there is the role of the United States in the international sphere. Trump would mean a more 'America First' approach in all dealings as seen from his stern stance on trade with China, his abolishment of NAFTA and the exit of the Paris Climate Accord. In contrast, Biden would work on a more global integration of the United States as deployed in the Obama-Biden administration before Trump took office in 2016.

What does that mean for markets? Let's see.

Dollar to suffer on Biden's victory due to a bigger stimulus program

With a hypothetical Democratic victory, the dollar would go down as investors would bet on a bigger stimulus package and more money into the economy. That would push Treasury yields higher and the dollar down.

Also, with the increase of the debt to GDP ratio in the United States, the White House and the Federal Reserve would work on a weak US dollar to get more ability to pay back debts.

In a weak-dollar environment, riskier assets such as stocks, metals, euro, pound, and even cryptocurrencies such as Bitcoin and Ethereum would take advantage of the situation.

On the other hand, Trump would approve stimulus too, but a smaller one. So, there will be a dollar weakness too, but its decline would not be that deep.

What about the Senate? In that context, Wall Street is no longer afraid of a blue wave where Biden wins the presidency and the Senate goes for the Democratic party. However, a split government with Biden dealing with a Republican Senate is still the best option for Wall Street.

It would add a bigger stimulus package, but it will also contain excessive regulation to investment markets.

In that framework, the EUR/USD would trade above the 1.2000 mark by 2021, as some banks are anticipating. However, it looks unlikely due to the risk aversion ahead of the US election in the short term.

As for the GBP/USD, investors have two fronts: Brexit and US elections. With a weak dollar, any positive outcome from a Brexit deal would be bullish for the cable.

On gold, a Democratic win would fuel gold as more spending is better for the metal. As TD securities analyst says, "we expect the yellow metal to perform, as global reflation helps fuel weakness in the broad USD, while conversely, a more sustained rise in rates would likely push the Fed to increase the weighted average maturity of their Treasury purchases, which would help to suppress real yields once again."

"In this context," the bank concludes, "the balance of risks remains tilted to the upside in precious metals — the gold bug is well and alive."

What if Trump gives the market a contested election?

In the case of a contested election, experts say it could be a long and problematic situation for the United States and the markets as a whole. Uncertainty would rise to high and risk aversion would be the topic of the moment.

In that framework, gold would be the biggest winner, but the US dollar's resilience would contain any gain. The market would enter in paralysis and the headlines would command price movements.

There would be one colossal loser: Wall Street and all retail investors out there with the technology sector falling hard.

A contested election would be the kiss of death, and any correction experienced in Wall Street in the last years would look like a minimal party.

This Market Analysis has been published by a staff writer at XBTFX .

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