Invest
What investors should do before the US election
As the election date draws near, investors are being urged to forget the “fireworks and noise” and focus on the long-term fundamentals when investing in the US.
What investors should do before the US election
As the election date draws near, investors are being urged to forget the “fireworks and noise” and focus on the long-term fundamentals when investing in the US.
As a decisive Biden victory is looking increasingly likely, Principal Global Investors chief strategist Seema Shah told investors that regardless of who wins, it will have little bearing on the long-term trajectory of the market.
“We know from experience that polls do not have a perfect predictive track record, but neither do market expectations. The overwhelming belief in 2016 was that a Trump victory would be negative for risk assets, yet until the pandemic Trump had presided over one of the best market performances in decades,” he said.
Mr Shah said investors should remember that the “fireworks and noise” surrounding the election will subside and markets will reassert a trajectory determined by fundamentals rather than election news flow.
“In our view, reducing long-term investment allocations because of a political view means taking a stance against the ability of the US economy to grow, and believe that an active, long-term approach remains best, even for investors worried about the election,” he explained.
The stock market indicator v election betting odds
Sean Markowicz, global strategist at Schroders, told investors to watch the stock market when trying to predict the winner.
The stock market has a strong track record of correctly “predicting” the outcome of presidential elections. Whenever US equities were up in the three months leading up to election day, the incumbent party won and whenever they were down, the incumbent party lost.
“Since 1932, this methodology has correctly predicted the winner 86 per cent of the time, or 19 of the last 22 presidential elections. So with the S&P 500 index up around 4 per cent since August, markets seem to be pricing in a Trump victory,” Mr Markowicz said.
However, the investor pointed out that the markets are up while Mr Trump’s odds and polling data have fallen.
“One possible explanation is that Biden’s widening lead in the polls has reduced the possibility of a contested election, which is perceived as more negative for stocks (at least in the short run) than fears of higher taxes or regulation under a Biden presidency,” Mr Markowicz said.
“At the same time, stock prices do not just give a possible indication of who might win the presidency, but also the state of the economy, which has been recovering from the fallout of COVID-19.”
“Another possibility is that the betting markets have placed too much confidence in a decisive win against Trump.”
What should Australian investors do?
A recent discussion on the likely local impact of the US election between three leading investment experts from ETF Securities (Kanish Chugh, head of distribution), Pitcher Partners (David Lane, director and senior adviser) and Evans and Partners (Timothy Rocks, CIO) concluded with a consensus advice for Australian investors to maintain their long-term strategy, have an allocation for defensive assets such as cash and gold, and look for buying opportunities in drawdowns bought on by any post-election-induced volatility.
The three industry experts also believe Biden will be elected president, which may have a short-term downward effect on the market, albeit the COVID situation likely to have a larger impact on the general market direction.
They also pointed out an increased stimulus spending resulting from a Democrat in the White House and a ‘blue wave’ delivering both Houses to the Biden forces countering the impacts of likely higher corporate taxes under a Biden administration was flagged as a possibility.
“When you historically look at markets reacting to US elections, in most periods you actually find that the volatility of markets increases for the three months prior to the election. That hasn’t actually been the case this year. We had so much volatility earlier in the year that last few months have been relatively modest in terms of volatility,” noted David Lane director and senior adviser for Pitcher Partners.
“Now is the time to be defensive in our portfolios. We feel uncertain about the three to five-year story for markets than we’ve ever been. Now is the time for investors to maintain healthy levels of defensive assets, including cash and gold,” says Mr Rocks.
While Mr Shah pointed out that markets have already priced in the chances of a Biden win. He said positioning a portfolio based on which candidate is likely to win could be a dangerous strategy.
“Regardless of the outcome of the election, markets will remain buoyed by easy financial conditions, accommodative monetary policy and ample liquidity, factors which have already driven them to record highs despite the disastrous effects of the pandemic,” Mr Shah said.
“Ultimately, investors should remain focused on fundamentals and fully invested during the election. The priority should be diversification and active positioning for a slow and protracted economic recovery backed by central bank liquidity.”
About the author
About the author
Stock market
Is it too late to start investing in market index ETFs?
With the Australian market recovering its losses since the pandemic began, nestegg asked an industry expert if it was too late for investors to begin their investing journey. ...Read more
Stock market
Is it time to buy reopening stocks?
Investors are being advised to look into stocks that could benefit from markets reopening, an analyst has stated. ...Read more
Stock market
Stocks to watch in 2021
Easing political uncertainty, new vaccine hopes, central bank’s willingness to do all it takes and more, and new stimulus packages are likely to act as tailwinds for investors, an analyst has said. ...Read more
Stock market
Australia’s October stock picks revealed
Australian retail investors piled predominantly into high-growth industries such as electric vehicles stocks, cloud computing and recent third quarter IPOs during the month of October, new research ha...Read more
Stock market
The US election created a ‘goldilocks scenario’ for financial markets
As the votes continue and the results are collated, the US election is increasingly likely to create a “goldilocks scenario”, an industry expert has said. ...Read more
Stock market
How a Democrats sweep could benefit the Australian market
As Americans go to the polls, a Biden victory could help Australia’s sharemarket, an investment bank has revealed. ...Read more
Stock market
Big 4 bank flags remediation hit
One of Australia’s big four banks is gearing up to pay another hundred-million-dollar fine, according to the company announcement. ...Read more
Stock market
What are the top 8 IPOs by trades?
Investors looking to outperform the market are continuing to look at initial public offering stocks despite recent market volatility. ...Read more
Stock market
Is it too late to start investing in market index ETFs?
With the Australian market recovering its losses since the pandemic began, nestegg asked an industry expert if it was too late for investors to begin their investing journey. ...Read more
Stock market
Is it time to buy reopening stocks?
Investors are being advised to look into stocks that could benefit from markets reopening, an analyst has stated. ...Read more
Stock market
Stocks to watch in 2021
Easing political uncertainty, new vaccine hopes, central bank’s willingness to do all it takes and more, and new stimulus packages are likely to act as tailwinds for investors, an analyst has said. ...Read more
Stock market
Australia’s October stock picks revealed
Australian retail investors piled predominantly into high-growth industries such as electric vehicles stocks, cloud computing and recent third quarter IPOs during the month of October, new research ha...Read more
Stock market
The US election created a ‘goldilocks scenario’ for financial markets
As the votes continue and the results are collated, the US election is increasingly likely to create a “goldilocks scenario”, an industry expert has said. ...Read more
Stock market
How a Democrats sweep could benefit the Australian market
As Americans go to the polls, a Biden victory could help Australia’s sharemarket, an investment bank has revealed. ...Read more
Stock market
Big 4 bank flags remediation hit
One of Australia’s big four banks is gearing up to pay another hundred-million-dollar fine, according to the company announcement. ...Read more
Stock market
What are the top 8 IPOs by trades?
Investors looking to outperform the market are continuing to look at initial public offering stocks despite recent market volatility. ...Read more
More articles
Website Notifications
Get notifications in real-time for staying up to date with content that matters to you.
