Former Vice-President Joe Biden appears to be on the cusp of victory in the United States Presidential election, edging ahead in the all-important Electoral College.

But while Biden looks set to snag a win, investor fears over a potential disputed or contested election outcome have heightened, after President Donald Trump’s campaign team cited “irregularities in several Wisconsin counties” and confirmed the President has filed lawsuits in Georgia, Michigan and Pennsylvania to stop vote counting.

CommSec Senior Economist, Ryan Felsman, said the most likely outcome of the election is looking like it will be a Biden presidency, but a divided Congress, with a continuation of a Democratic House and a Republican Senate.

If this is indeed the outcome, it will maintain the current state of gridlock in the US Congress. But, Mr Felsman said US sharemarket investors have seemingly shrugged off the potential for an ongoing divided US Congress and diminished fiscal stimulus to support the US economic recovery.

“On Wednesday, the Dow Jones index closed higher by 368 points or 1.3 per cent after being up 821 points. The S&P500 index finished up by 2.2 per cent – the biggest post-election day gain ever,” he said.

“With the narrative around the ‘Blue Wave’ stimulus and reflation trade fading, investors revisited the possible ‘deflationary’ impact of a Biden presidency coupled with a Republican Senate. With a more conservative fiscal stance increasingly likely, and investor concerns about higher taxes and re-regulation of industry diminishing, Wall Street rotated back towards its ‘go-to’ pandemic trade – buying growth and mega-cap technology shares.”

Mr Felsman said it is clear some investors view a ‘gridlocked US Congress’ in a positive light, as this outcome would reduce risks around the China-US trade war and provide more certainty for multilateral businesses.

“If a prolonged and messy contested election emerges – that isn’t settled until mid-December or even into January – a risk-off period would likely emerge given the increasing need to nurse the US economy through the ‘second wave’ of the pandemic,” he said.

“Partial lockdowns could impact confidence, job hiring and consumer spending. The failure to deliver a meaningful virus relief package would further erode market sentiment.”

For more insights from Ryan Felsman on the US election, read his report here or watch an interview here.