The Biggest Election Risk

The Biggest Election Risk

over 3 years ago2 mins

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Fresh data out on Thursday underlined the precarious state of the US economy at present – but for investors focused on American stocks, the result of elections due in just 10 weeks’ time may be crucial 🇺🇸

What does this mean?

Stocks wobbled on news that US unemployment claims last week were higher than expected, even as the Federal Reserve remains unwilling to provide fresh funky financial stimulus in the form of “yield curve control”.

Adding to ongoing coronavirus- and China-related uncertainty for American investors is another unknown: November’s elections. And while things can change fast – especially if the current administration begins to beat the virus – polls currently predict the Democratic party will win control of Congress, White House, and (probably) Senate.

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While both sides’ actual policies remain sketchy, investors see a Republican win as better for stocks overall in the short term: the Democrats plan to roll back half the recent tax reforms that put more money in companies’ and shareholders’ pockets. That being said, green stocks and “defensive” sectors such as utilities may stand to gain – while a clean Democratic sweep could lead to stimulus measures that boost economic growth in the long run.

A Republican win would likely benefit telecoms and oil and gas stocks in particular – but further trade tension with China (perhaps inevitable anyway) could hit exports, particularly of agricultural commodities 👩‍🌾

Why should I care?

The US S&P 500 has probably “priced in” the likelihood of a Democratic presidential win already. An investment tracking the **Russell 2000 **index of smaller and more US-focused companies, however, could stand to make greater gains should Republicans retain power.

Some investors, meanwhile, are preparing for a brief but intense period of market volatility around election day. The worst-case scenario for stocks would be an unclear result in the presidential race; in November 2000, the S&P 500 fell over 8% between polls closing and the winner being announced 😳

Lofty valuations may make such a selloff more likely. According to a recent survey from Bank of America, investment managers are increasingly uncomfortable about the sustainability of the “everything rally” – although they predict improving company profits ahead.

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For Finimizers, the best approach may be to simply look past all this uncertainty. Maybe treat any dips as a chance to invest more through dollar-cost averaging – and in any event, remember your investment horizon extends beyond a single election cycle…



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