There has not yet been an official announcement of the results of the US presidential election, but the media has already replicated Joe Biden's significant advantage and victory. Apparently, this news gave the markets a sense of euphoria, because at last there was at least some clarity. In light of the rapidly spreading COVID-19 virus and the still unresolved issue of fiscal incentives for the US economy, this kind of "certainty" about the future President is perceived by the market as a real balm for the soul.
Amid this euphoria, the S&P 500 posted its best performance since April, jumping 7.3% in the first week of November. The dollar index declined, reaching the lowest level since the beginning of September. At the time of writing, the dollar index relative to a basket of major world currencies still rose slightly to 92.286.
As practice shows, if the S&P 500 rose on the day of the presidential election, it is likely that in November and December, stock indexes will also be in the green zone. In the first years of the newly elected President's work in American practice, stocks also showed better results. So, the broad-based S&P 500 index could rise by 18% on average.
However, in this case, everything is more complicated, because the newly elected US President, is unlikely to be able to carry out radical reforms in the near future due to the division of the Congress. Since 1928, for 45 years, when power belonged to one party, the stock market on average rose by 7.46% per year. During the 46th year when power was divided, the stock market grew by an average of 7.26% per year.
Investors, under the influence of the euphoria of the past elections and the supposedly already announced results, seem not to notice some aggravating circumstances. One of them is the current political uncertainty when the President is announced in the media, but there has not yet been an official announcement, which is required by law. Donald Trump is clearly not going to give up and intends to contest this election. The composition of the Senate will not be known until January 5, which may lead to the second round of voting in Georgia.
This kind of background, in turn, affects the adoption of additional measures to support the country's economy. These measures are necessary for both the US economy and global GDP, and for risk appetite in general.
The negative is also largely formed due to the absence of a vaccine against coronavirus. And this is despite the fact that COVID-19 is actively spreading in the US and Europe. Germany, France, and other European countries have already introduced partial lockdown on their territories. This may well lead to divergence in economic growth.
Also, keep in mind that the US dollar doesn't always fall when the S&P 500 index rises. In times of strong uncertainty, which is what is currently observed in the political and economic sphere, the inverse correlation of indices tends to the maximum. When the uncertainty decreases, then the connections begin to break.
The euphoria in the US markets clearly doesn't benefit the dollar. The EUR / USD bulls are not able to keep quotes above 1.188, which increases the risk of a pullback to 1.183 and 1.178. Conversely, if an important level is in the hands of buyers, it is quite possible to continue the rally to the level of 1.195-1.196.