US elections: Top ten investor questions answered

As the US elections approach, investors are seeking clarity on how potential outcomes will affect the markets. Whether it’s fiscal policies, trade, or sector-specific impacts, each candidate’s agenda could shape the financial landscape for years to come. Here, we answer some of the top questions investors are asking as they prepare their portfolios for this crucial event.

Who is favoured to win the 2024 presidential election?

As the U.S. election draws near, both betting markets and polls offer valuable insights into which candidate is leading the race. Here’s how to track who is favored to win:

Betting odds on polymarket: Betting platforms like Polymarket allow users to place real-money bets on election outcomes, providing a real-time snapshot of market sentiment. Odds on these platforms often fluctuate based on campaign developments, debates, or breaking news. While betting markets don’t always align with polling data, they can highlight where investors believe momentum is shifting.

Tracking polls: Polling remains a key tool in gauging voter sentiment. To get a clear picture, focus on aggregators like FiveThirtyEight and RealClearPolitics, which compile and average multiple polls. This approach helps to smooth out individual polling biases and errors. Keep an eye on swing states and key demographics, as these are often decisive in U.S. elections. Shifts in polling following major events can indicate which candidate is gaining or losing ground.

Combining insights from both betting odds and polling data provides a broader view of which candidate is favored, helping investors anticipate potential election outcomes.

What are the key policy differences between Trump and Harris?

Each candidate brings a distinct policy approach that could have varied effects on sectors and asset classes. Here’s a breakdown of their potential economic and financial agendas:

• Trump: Expect fiscal spending with tax cuts, a continuation and extension of trade tariffs, and energy independence, which could boost defense and energy sectors but strain international relations.

• Harris: Her agenda may focus on increased government spending but accompanied by tax hikes, cooperation in foreign trade, and a strong focus on renewable energy. This could favor sustainable investments and ease the pressure on commodity prices.

What are the most positive and negative market scenarios following the election?

Positive scenario: A Harris gridlock, where Harris wins the presidency, but the Democrats lose control of the Senate, is seen as the most market-friendly outcome. It would maintain the current political balance, avoiding corporate tax hikes while also preventing the introduction of new tariffs, supporting continued market growth.

Negative scenario: A Democratic sweep is viewed as the most negative, as it would likely lead to higher corporate taxes (from 21% to 28%), triggering a swift downward adjustment in company valuations and a potential sell-off in US stocks. However, the probability of a Democratic sweep remains low given the US Electoral College system tilts the odds in favor of a Republican victory.

For more insights on these scenarios, check out our detailed article on the best and the worst scenarios for markets from the US elections.

How will the election affect market volatility?

US elections are historically linked to heightened market volatility. This year is no different, as investors weigh the implications of a potential change in leadership or continued policy direction. Volatility is often driven by uncertainty, and key areas like fiscal spending, trade policy, and foreign relations are at the heart of the debate.

Key takeaway: Prepare for potential short-term swings by partially diversifying across asset classes. Consider adding safe-haven assets like gold or cash equivalents to your portfolio as a hedge. Options can also be effective tools for managing your portfolio’s volatility during turbulent times. They offer flexibility and defined risk/reward profiles, making them suitable for various market scenarios. For instance, you can use options to protect your portfolio against sharp declines or to generate income in a range-bound market. To know more, read this article on how to manage volatility around US elections using options.

How do markets perform in election years?

The interaction between presidential elections and equity markets is complex. Generally it is expected that markets do well ahead of the elections as the incumbent president would do his best to prop up the economy to look good.

In How US elections have shaped market performance in modern history we took a look at market performance in US equities over the previous 13 elections since 1972. What we find is that there is no significant difference in compounded returns in election years compared to non-election years. Given the efficiency of financial markets that is also what you would expect.

What we did find was there is a weak claim to be made that a strong equity market going into the election favours the party controlling the White House. Another finding was that the one-year return in S&P 500 post-election is generally much higher for the Democratic Party, but again there was some great timing and luck in these results as the Democratic Party won the election prior to the three rebound years of 1976, 1996, and 2020.

How have markets historically performed after US elections?

Historically, markets often experience heightened volatility in the weeks following US elections as investors adjust to the outcome. However, over the long term, markets tend to stabilize and perform positively regardless of the winning party, driven by broader economic conditions rather than political changes alone.

• Post-election trends:

  • A clear winner tends to ease uncertainty, leading to market stabilization and a focus on economic fundamentals.

  • A gridlock can heighten policy uncertainty, potentially leading to volatility. A prolonged and contested election result, as seen in 2020, would also likely increase volatility, especially if some form of constitutional crisis materializes. 

• Key takeaway: Short-term volatility is expected, but the long-term trend is typically upward once the market digests the election outcome. Diversification can help weather this volatility.

Which sectors are most likely to benefit from each candidate’s win?

Sectoral performance will vary widely depending on who wins the presidency. Here’s a quick breakdown of the potential winners:

• If Trump wins:

  • Defense: Likely increased spending on military and defense contracts.

  • Energy: Expect a continued focus on fossil fuels and energy independence.

  • Technology: Tax cuts could benefit the tech sector, though trade wars might bring challenges.

• If Harris wins:

  • Renewable Energy: A focus on sustainability could boost clean energy investments.

  • Healthcare: Potential healthcare reforms could reshape the sector but also introduce new opportunities for innovation.

  • International Trade: Reduced trade tariffs and a focus on cooperation could benefit global exporters.

Which stocks could be interesting going into the US elections?

The most significant market impact could come from a clean sweep by either party, allowing them to push through ambitious agendas. Here’s a look at key stocks to watch based on different election outcomes:

• Republican sweep: Lower corporate taxes and relaxed antitrust regulations could benefit Wall Street, big tech, and banks.

  • Defense stocks like Lockheed Martin (LMT) and Rheinmetall (RHMG) could benefit from increased military spending.

  • Energy stocks like ExxonMobil (XOM) and Chevron (CVX) might perform well with continued focus on traditional energy.

  • Infrastructure stocks like Caterpillar (CAT) may benefit from increased spending.

  • Banks like JP Morgan (JPM) and Goldman Sachs could benefit from potential rush of mergers and acquisitions.

  • Small caps could benefit from Trump’s potential corporate tax cuts.

• Democratic sweep: More spending on green technology and support for low-income consumers could drive growth in renewable energy and infrastructure.

  • Renewable energy stocks like NextEra Energy (NEE) and First Solar (FSLR) could see gains with increased focus on clean energy initiatives.

  • Tech giants like Apple (AAPL) and Microsoft (MSFT) may benefit from reduced geopolitical tensions and global trade stability.

Will the elections impact the US Dollar?

Yes, both currency markets and interest rates could see fluctuations. Markets tend to price in political outcomes ahead of time, but a surprise result could trigger sharp movements.

• Trump’s impact: Trump’s pro-growth policies with continued fiscal stimulus could be inflationary and lead to a higher US dollar in the first wave. Heightened trade wars could also strengthen the US Dollar, while weakening currencies like the Chinese yuan or other Asian FX.

• Harris’ impact: Harris policies are less clear but tactically it could mean a relief for tariff-exposed currencies and lead to a weaker US dollar. More stable foreign relations could also mean weaker USD in the short run, but more structural stability.

How should I invest for ‘no matter who wins’?

Regardless of the election outcome, certain investment principles such as those of diversification and long-term focus remain valuable in navigating market uncertainty. No matter the outcome, several trends are expected to continue or accelerate, providing key areas to explore:

• Infrastructure spending: Expect an increase in infrastructure investment no matter who wins, benefiting sectors like construction, materials, and industrials.

• Inflation risks: With the fiscal deficit set to exceed 6%, inflationary pressures could remain. Look to commodities, TIPS, and REITs as inflation-hedged investments.

• Deglobalization: As global supply chains shift, countries like Vietnam, India, and Indonesia stand to benefit from continued deglobalization.

• AI and Tech innovation: Regardless of who wins, AI development, cybersecurity, and electrification remain key growth areas.

• Defense spending: With geopolitical instability, defense budgets are likely to increase under either presidency, offering potential in defense stocks under both candidates.

• Clean energy: As net-zero targets and lower interest rates come into focus, clean energy investments could be set to rise.

• Healthcare: Positioned as both an innovative and defensive sector, healthcare could continue to thrive, similar to tech in previous cycles.

• Gold: Consider gold as a reliable safe-haven asset in times of uncertainty.

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