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‘The markets are being too sanguine’ given the likelihood of a contested election: Niall Ferguson

The markets rallied on Wednesday on the prospect of a divided Congress and a lower likelihood of tax hikes or regulations. But as Americans await the results of the presidential election, the possibility of a contested outcome is growing likelier by the second.

“I find the market a little bit too sanguine at the moment as we could well be on the brink of a very protractive, painful, process that will make the year 2000 election look like a walk in the park,” Niall Ferguson, senior fellow at the Hoover Institute told Yahoo Finance Live.

In 2000, the election contest went to the Supreme Court and the Bush vs Gore decision didn’t come until December of that year.

An election personnel examines a ballot as vote counting in the general election continues at State Farm Arena, Wednesday, Nov. 4, 2020, in Atlanta. (AP Photo/Brynn Anderson)
An election personnel examines a ballot as vote counting in the general election continues at State Farm Arena, Wednesday, Nov. 4, 2020, in Atlanta. (AP Photo/Brynn Anderson)

“The blue wave disappeared and turned out into a ripple overnight,” said Ferguson. That makes more left leaning ideas less plausible to pass through a divided Congress. The rally in big tech today may also signal “the new safe haven when people don't quite know what else is going on,” he added.

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“My sense is that this rally is a rather fragile thing,” said Ferguson.

“We have a scenario in which we could end up with Joe Biden getting to 270 Electoral College votes ... and the Trump campaign is simply going to say, ‘No, we don't accept that,’ ” said Ferguson.

“I think there will be a kind of take-no-prisoners approach to the litigation,” said Ferguson.

On Wednesday afternoon the Trump campaign said it was contesting the results in Wisconsin which showed Biden as the winner, and suing to temporarily halt ballot counting in Pennsylvania.

“This could get ugly fast if there isn't a quick resolution,” said Ferguson.

“I think investors will lose their nerve if they start to attach a probability to that kind of a scenario,” he added.

On Wednesday the Nasdaq (^IXIC) gained 3.9%, the S&P 500 (^GSPC) rose 2.2% and the Dow Jones (^DJI) closed the session up about 370 points.

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Ines covers the U.S. stock market. Follow her on Twitter at @ines_ferre

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