The most recent US election polls suggest that Kamala Harris has improved in the head to head against Donald Trump. Confirmation also comes from Obama’s support, who reiterates his “Yes, she can” to the Democratic candidate. If the balance of the polls changes, what can happen to the markets? And how should we position ourselves?
For Mark HaefeleChief Investment Officer of UBS Global Wealth Managementthis latest sudden change confirms that it is better to avoid to bring substantial changes to the portfolio in response to developments in the election campaign or in anticipation of a particular election result. The analyst recommends rather exploit diversification to manage volatility spikes and broaden sources of return to avoid bias towards major risk events.
How Election Odds Change
We adjusted our latest probabilities to account for changes in voter behavior, Haefele explains, by assigning the Blue Sweep scenario (Harris with the Democratic majority in Congress) a probability of 15%and to a result in which Harris Wins But With a Divided Congress (Republican Senate, Democratic House) of 40%.
Instead, a probability of 35% to a scenario Red Sweep (Trump with a Republican majority in Congress) and a probability of 10% to a scenario in which Trump Wins With a Divided Congress (Republican Senate, Democratic House).
How the impact on markets changes
In the scenario where the wins Harris without a majorityit would be very difficult for the new administration to bring about the radical policy changes promised and, therefore, there would be a more limited impact on the markets Financials: Equities would see industrials, raw materials and renewables advance, while growth prospects, inflation, monetary policy and the dollar would have minimal impact.
The scenario Blue Sweep (Harris with the majority in Congress) would probably be the most negative result stock marketsmainly due to a greater likelihood of a corporate tax hike. Interest rates would likely fall, reflecting lower inflation and growth, and there would be further Fed cutsThe scenario would instead be negative for the dollar.
The lesson: Better to keep a diversified portfolio
“This latest shift in electoral preferences – comments the analyst from UBS Global Wealth Management – underlines our previous indication of avoid radical portfolio changes in response to developments in the election campaign. We continue to support the diversification of the portfolio to mitigate increased volatility, to broaden sources of return and to avoid behavioral biases”.
“We expect it S&P 500 to hit 5,900 by December 2024, with strong earnings growth close to 11% this year and 8% in 2025. – concludes the expert – Let’s stay constructive on gold in a context of geopolitical tensions, a growing US fiscal deficit and impending rate cuts by the Fed. We also recommend review and address overexposure of the wallet by sectors, currencies and countries sensitive to elections. Alternative assets can also help diversify portfolios, with hedge funds offering low correlation to traditional asset classes and private equity showing less exposure to growth volatility in favor of smaller companies.”
