It’s still a coin toss when it comes to predicting the US election outcome – and financial markets don’t like unpredictability. You can expect election-based volatility in the run up to the US elections and immediately after that.
The bottom line? Investors should focus on the long term and ride out the volatility through diversification rather than investing for a particular election result.
It’s too close to call, so sit tight
The race between Kamala Harris and Donald Trump is running neck and neck, with Harris seen as slightly ahead after being widely considered the winner of their September debate. A recent CNN poll found Harris leading by a percentage point, coming in at 48% versus Trump’s 47%. However, some investment managers, including UBS, predict she has as much as 55% support.
Given that there is no clear leader in the presidential race to date, it’s advisable not to invest in a particular election outcome or make rash decisions. Instead, investors should base their decisions on longer-term considerations and not in response to short-term volatility.
Risk-averse investors could consider investing in assets with downside protection. These can be accessed by investing in conservatively invested balanced funds that use hedging strategies to protect against potential market selloffs.
Harris represents continuity; Trump signifies unpredictability
If Harris becomes president, she’s likely to maintain most of the focus areas and policies implemented by the current administration. In a Harris presidency, investors can expect continued focus on sustainability, high-tech chip production incentives and ongoing fiscal spending.
A Trump presidency would be defined by higher tariffs, particularly on China, where he sometimes threatens to introduce 100% tariffs (compared with 10% on other countries). He’s also expected to support the domestic oil and gas industries to reduce energy prices. Tax cuts would also be a feature, sustaining fiscal stimulus in the US economy.
The common ground between the two candidates is that they will back continued government spending, regardless of an already significant budget deficit.
Investors see a Harris win as better for bonds, worse for stocks
Bloomberg research shows that institutional investors expect a Harris presidency to be more positive for bonds. A Trump win, meanwhile, would be more likely to favour equities. The results show 50% of respondents plan to increase exposure to equities if Trump wins, whereas only 28% said they would if Harris becomes president. Most survey participants would cut their exposure to bonds on a Trump win but maintain it if Harris prevails.
The bottom line
Investing based on short-term considerations is never advisable, and it’s no different regarding the US elections. History shows that what happens immediately after the election rarely defines how financial markets will perform six months to a year after. Investors should expect elevated volatility in the buildup to the elections and after the results are published. The best strategy, as always, is to hold your course and rely on diversification to deliver long after the election results come in.
If you have any questions about how all of this affects your investment portfolio, please give us a ring.
Disclaimer – *The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your professional adviser for specific and detailed advice.
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