4 Things to Watch on Election Night: UBS

In the event of a Biden presidency, the question will become whether Democrats can also win the Senate. Democrats need to flip at least four seats from the following races to gain control: Georgia with two, Iowa, Maine, Montana, North Carolina and South Carolina.

The outcome is extremely important for markets and the economy. In the case of a divided government, a fiscal stimulus package may be delayed or not large enough.

On the flip side, a Senate in which Democrats control 55 or so seats would most likely mean significantly higher taxes for corporations and wealthy individuals.

The scenario most likely to please the market would be a "light blue wave" where stimulus passes but the progressive wing of the Democratic Party would not have the votes to pass more aggressive policies, according to UBS.

4. Watch the markets. 

The 2016 election was notorious both for how much the polling was off and for how wrong-footed the equity market's initial reaction was, UBS says. So it is important to take first reactions with a grain of salt.

Beyond overall index levels, watch how different indexes are reacting, such as the Russell versus the Nasdaq.

In a blue wave, small and medium-sized firms should fare better on the back of expected fiscal easing. It is also important to watch Treasurys and the dollar.

Treasurys will likely sell off in a clearer Democratic victory. And UBS CIO expects the dollar to rally if Republicans are winning — noting that sometimes these markets give clearer signals than equity markets.

As a final word, Marcelli notes there's a lot riding on this election. If the results are not known in a short period of time, and if the elections are still contested after all the votes are counted, a bout of market volatility is almost certain.

Coronavirus cases are resurging across the Western world, and the future administration will need to figure out how to handle the economic fallout from the potential restrictions on the economy, at a time when millions are already suffering because of massive unemployment in the physical service sectors.

"We, at the CIO, will keep our clients and advisors abreast of the latest developments and what they mean for the markets in a timely and frequent manner," Marcelli says.

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