US election: Predictions for seven important investment holdings

As 8 November approaches, affluent individuals the world over will be wondering how the US Election result will impact their investment portfolios. Here, Seven Investment Management outlines possible outcomes for seven key assets.

On 8 November, the world’s most vaunted election will reach its finale. From this side of the “pond”, it is largely understood to be a binary choice akin to Brexit. In reality, it’s a lot more complicated. Americans will be voting in the 45th US President, but also choosing 435 candidates to sit in the House of Representatives (a.k.a. Congress) and selecting 34 Senators. The possible permutations of Democratic or Republican President, Congress and Senate all have different implications for capital markets.

The last few weeks of media headlines have been more damaging to Trump than Clinton. However, Trump still commands almost 43% of the popular vote[1] and he’s still standing. Given how pollsters have performed – think the 2015 UK general election and Brexit – they could be wrong again, especially if Trump is able to tap into a base of support that has not traditionally voted and is not on pollsters’ lists.

Whatever voters choose, we’re making sure that we have planned scenarios for each of the possible results across all our asset classes. Here’s our starter for seven investments:

 ClintonTrump
S&P 500Clinton is the second most loathed candidate in recent history, but there is a chance that Congress and the Senate could both tip into the hands of the Democrats if voters turn even more decisively against Trump. This would allow Clinton to push through significant changes in policies. It remains to be seen whether these would be business-friendly, and the index might well sell off when faced with such unexpected uncertainty.With some chance of election despite the divisive rhetoric, a Trump win could see us in uncharted territory as far as markets are concerned. Trump’s proposal to cut the US corporate tax rate by 20 percentage points suggests American investors may well increase investments in US equities. This could be partially offset by foreign investors – who hold circa 20% of the index – fleeing Trump-risk.
US TreasuriesClinton is a known quantity and, while she is slightly to the left of Barack Obama on some policy issues, the US presidency does not actually wield that much power versus the Federal Reserve (Fed) Chair Janet Yellen, for example. We expect that government bonds will remain largely unchanged. Indeed, they are more likely to react to statements around December’s Monetary Policy meeting than any Democratic election success.Accusations that the Federal Reserve Chair is trying to make Obama’s last year look all the more rosier have not helped an already rocky relationship between Trump and the Fed. Treasury markets are likely to be hurt by foreign investors (circa 46% ownership) selling down their holdings. While China’s sales of its holdings have slowed recently, a vote for Trump could accelerate action to reduce their US$3 trillion portfolio further.
US DollarThe US Dollar is unlikely to be immediately affected by a Clinton victory, given it represents a continuation of conventional politics and economics.Traditionally seen as a safe haven, the US Dollar could react as Sterling has on the back of the Brexit vote. Weaker demand and the desire by many to move investments away from the influence of an eccentric, novice statesman could see its value fall
FTSE 100Likely to remain unchanged in this scenario.While the index has increased by around 10% this year, when seen in US Dollar terms it has actually fallen since the EU Referendum. International investors are likely to continue to treat it as a play on Sterling weakness rather than global, or US, economic growth.
Euro Stoxx 502017 sees a number of important elections on the EU’s own shores. We believe that investors are already lightly invested in the index, given European politics have again shifted towards populist parties. The lack of a resolution on migration also remains a risk. There would be little impact from a Clinton victory since Europe has its own problems.Over the last two years, the index appears to have become the focus for any bad news released around the world. And, while performance post the Brexit vote was better than many (including ourselves) supposed, we believe that the index will not be as supported this time. The desire to have more goods made in America by US workers may affect European stockmarkets, given its large trade surplus with the US.
MSCI Asia Ex. JapanWhile Clinton has disavowed her previous support for the Trans-Pacific Partnership (a free trade agreement among 12 Pacific Rim countries excluding China), her approach to securing more jobs for American workers is likely to be far more diplomatic than Trump’s. Meanwhile her proposed tax breaks for middle-class families could actually fuel further trade with this important economic bloc.Asia’s fortunes remain linked to those of the US given its production hub role. Election rhetoric from the Republican candidate has massively deviated from the usual Republican party line and we see an almost immediate increase in antagonism between China and the US. This would immediately influence stockmarkets even if any real shift in jobs and production back to the US would take years rather than months to happen.
GoldWe believe that markets will remain relatively calm in the face of a Clinton victory given she is a known quantity, so there will be little need for a flight to gold.In the face of a Trump triumph, investors will probably feel that their options for safe havens have been reduced and gold will be the glittering option. This may especially be the case if the US stalwarts of Treasuries and the Dollar lose their lustre.

If you would like to discuss your portfolio or other wealth matters with Chris or his team at Seven Investment Management please contact us HERE and we will make personal introduction.

[1] FiveThirtyEight

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