The presidential election is pushing investors to position their portfolios for the outcome of a tight race between Donald Trump and Kamala Harris. Analysts suggest that the best result for market stability is a division of power among Democrats and Republicans. A balanced government where legislative power is divided tends to minimize extreme policy shifts, which can be favorable for market confidence.
Investors are urged to consider how different sectors might perform under each candidate’s policies. Trump’s administration could potentially emphasize deregulation and tax cuts, favoring sectors like energy, finance, and industrials. Harris, on the other hand, might focus on renewable energy, healthcare, and technology, suggesting a different set of winners.
Given the uncertainties, it’s prudent for investors to maintain a diversified portfolio. This means not only a mix of stocks across different sectors but also incorporating bonds and other asset classes. Some experts suggest looking into defensive stocks and safe-haven assets like gold.
These can provide a safety net against volatility that might arise from the election results or subsequent policy changes. The consensus among financial experts is to stay informed and be prepared to adjust portfolios as the political landscape becomes clearer. While historical trends can offer some guidance, the unique dynamics of this election necessitate a cautious and adaptable approach.
Options traders are preparing for significant volatility surrounding next week’s election, according to Goldman Sachs. Options market pricing suggests a substantial move for the S&P 500, with even more pronounced fluctuations for specific groups of stocks that may be more sensitive to the election outcome. Two funds with particularly high implied volatility are the KraneShares CSI China Internet ETF (KWEB) and the iShares China Large-Cap ETF (FXI).
Investors prepare for volatile outcomes
The ongoing contentious relationship between the U.S. and China remains a pivotal theme in American politics. The SPDR S&P Regional Banking ETF (KRE) is also among those with heightened volatility, although the election’s impact on this fund is less clear.
Regional banks might see a boost if a strong Republican performance suggests reduced regulation, but they could face challenges if interest rates increase. The cryptocurrency sector, already known for its volatility, could experience a significant reaction due to Trump’s favorable stance toward the industry. The options market suggests a potential move of more than 7% for the ProShares Bitcoin ETF (BITO).
The stock market is soaring, yet there is plenty to worry about: bubbling conflicts and outright wars around the world and a close and contentious election in the United States. At times like these, market history can be a source of comfort, at least up to a point. Relying on history for wisdom about investing assumes the future will resemble the past.
That has been a good assumption in the United States for the last century or so. From 1926 through 2023, large U.S. stocks returned 10.3 percent annualized, according to Morningstar, the financial services company. A time-tested strategy is buying a broad mix of stocks and bonds and holding on to them come what may, without allowing politics or world crises to intrude into investment decisions.
Yet the central assumption — that this time won’t be different for the stock or bond market — could be incorrect. Every so often, there are major breaches with history when countries are devastated by economic collapse, war or extreme political change. Partisans of the presidential election are warning that, if the wrong candidate wins, this contest could set the United States on a dangerous path.
While these issues are serious, optimism suggests that regardless of the winner, the markets and the economy will eventually trend upward. But this could be wrong, and if you are drawn to the dire predictions, an unruffled approach to investing may be unsatisfying.
