Hold Your Horses On The US Election

Hold Your Horses On The US Election

about 4 years ago2 mins

When professional investors published their 2020 outlooks a couple of months ago, one event loomed large across them all: November’s US election. But hold your donkeys, because a report from bond fund giant Pimco argues it’ll be some time yet before we even know who the Democratic Party’s candidate is 🐴

What does this mean?

A new president in the White House – or changes to the US Congress – could have massive implications for markets. So naturally, plenty of investors are watching the Democratic primaries for signs of who will take on Donald Trump. Problem is, after the first statewide contest (the Iowa caucuses) it’s as unclear as ever who will take on the incumbent Republican – let alone if they can beat him.

Investors will likely react in different ways depending who eventually wins the nomination, with Massachusetts Senator Elizabeth Warren pledging to shake-up the healthcare system and her counterpart from Vermont, Bernie Sanders, promising a crackdown on fossil fuels. Meanwhile former Vice President Joe Biden and former New York City Mayor Mike Bloomberg are seen as more “moderate.”

RealUnclearPolitics (Source: RealClearPolitics)
RealUnclearPolitics (Source: RealClearPolitics)

Why should I care?

Pimco reckons changes in the scheduling of votes this time around – with big states like California and Texas bringing forward their primaries to “Super Tuesday” on March 3 – mean, paradoxically, it may take longer than usual for an overall winner to emerge.

Expect a new dump of political headlines on Tuesday when New Hampshire holds its primary, followed by more noise from Nevada on February 22 and South Carolina on February 29. Trying to read too much into what each result means for markets could be dangerous.

“Investors should not extrapolate too much from who wins the early contests,” says Pimco – especially as the deep-pocketed Bloomberg is skipping the first four primaries entirely. “Financial markets may react to the early primary results, but we think it is important for investors not to get sidetracked by any primary-related volatility.”

Instead, Pimco recommends holding fire until March 3, when 34% of all nominating delegates will be allocated across 15 primaries, or even March 17 – by which time almost two-thirds of delegates will have been allocated.

“The ultimate outcome could look quite different from the results in the early contests,” Pimco warns.

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