What Does the Outcome of the US Election Mean For Your Investments?

Published by Sophie Fillmore on 2020 11 03

What Does the Outcome of the US Election Mean For Your Investments?

Remember, remember, the 5th of November as the saying goes.  It’s always been a difficult one for me to forget as it’s my mother’s birthday (and yours Helen, I know), but this year the most significant day in November might just be the 3rd.  It’s the day that the USA goes to the polls to either sanction Trump’s America or decide it’s time for a new way.  Whatever your views on Trump, it’s been an interesting ride and the next few months could be equally interesting.  So why is an election over the pond so important to us in the UK?

The simple answer is that the US is both a superpower financially and economically, and world-wide market sentiment is often driven by what is happening in America.  KDW run multi-asset portfolios and so, although the investment fund managers are UK based, the funds offer global diversification, which means that you will have exposure to US stock.

The US market has driven many portfolios this year as technology stocks have soared as we all move online. Who hasn’t been on a Zoom quiz or watched Netflix during the first lockdown? Shopping is done on Amazon and even my father has a smart phone.  Many believed that Trump needed the stock markets to soar to stand a chance of re-election and it was all going so well until Covid hit – something that even Trump couldn’t control.  However, his administration pushed on through whatever the cost, driving the economy and pumping in trillions to support liquidity.

The questions are, what are the consequences if Trump wins and alternatively, what if Biden succeeds?   Whomever wins on the 3rd, the markets are likely to show some short-term volatility.  The markets don’t like uncertainty and last week most US markets were negative as the election approaches and the pollster’s gap narrows – remember Hillary was predicted to win in 2016 and look what happened then.   It’s not just the election results driving the markets; company earnings, the Feds financial stimulus packages and growing Covid cases also need to be factored in.  The US election is also different from the UK and the final result may not be known until several weeks (and possible legal challenges) later, with the final hand over and inauguration in late January 2021.

If Trump wins, we can expect more of the same with fiscal stimulus into the market.  If Biden wins then there will still need to be a fiscal stimulus, but it is likely that this will be directed in a very different way, helping people combat the effects of the pandemic.  The investment community is split on the key factor for market sentiment – the election or the pandemic.  As more and more European countries move into a second lockdown, will the US follow suit with all the economic consequences?  It will be decided by whomever is in The White House.  That being said, many analysts believe that a second lockdown will not have the same devastating effect on world markets as we experienced in March 2020.  Yes, they will be volatile, but the fear factor and the tremendous uncertainty felt in March is no longer here.  The world knows more about the virus (but not as much as Trump!), there are known treatments that reduce the risk of death and at some point, there will be a vaccine.

There is cautious optimism from many analysts for 2021.  The majority of the S&P 500 companies believe that 2021 will show a comeback from 2020 and earnings forecasts are positive.  So, whomever makes it to The White House, the US will continue to be a financial powerhouse having a huge influence on world-wide markets.

The multi asset fund managers that we use at KDW will be on high alert over the next few weeks, making adjustments to your portfolios in order to manage your investments through this short-term volatility.  As the old Chinese curse that purports to be a blessing goes; “May you live in interesting times”.  Well we certainly do that.  I’m hoping for more boring times ahead.  So, we only have to sort out a trade deal and the chlorinated chicken debate…but that’s for another day.

Marcus Maisey