Quarterly Outlook
Macro outlook: Trump 2.0: Can the US have its cake and eat it, too?
John J. Hardy
Chief Macro Strategist
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Is your portfolio ready for the US election?
US Election
Saxo
Summary: This year’s US presidential election could market a dramatic shift in US policy, especially if the President and both houses of Congress share the same party after the election. With the election outcome quite uncertain, Election Day on November 5 could bring considerable volatility and new trends. Therefore, you should consider whether or how the election could affect your investment strategy.
The 2024 US presidential election stands out due to its unique circumstances: the assassination attempt on Donald Trump, Joe Biden stepping down, Kamala Harris’ quick takeover to name a few. Historically, the connection between election outcomes and markets has been inconsistent, but these dynamics add uncertainty that could translate into the markets. Therefore, it is important to assess whether your portfolio is structured appropriately before and after the showdown between Kamala Harris and Donald Trump on 5 November.
On the other hand, if Harris wins in any other way than a near landslide, it will likely be without a majority in both houses because of the Senate election map. Therefore, her ability to pass legislation would be limited. As such, the extent to which the markets will react to the outcome of the election may hinge on who wins.
Political factors adding complexity
The election’s outcome could affect market behaviour in several ways, particularly due to the current Congress, which is divided between a narrowly Republican-controlled House of Representatives and a narrowly Democratic-controlled Senate. If Trump wins, a Republican majority in both the Senate and the House of Representatives is very likely. This would allow him to push his policies through.On the other hand, if Harris wins in any other way than a near landslide, it will likely be without a majority in both houses because of the Senate election map. Therefore, her ability to pass legislation would be limited. As such, the extent to which the markets will react to the outcome of the election may hinge on who wins.
But where does all of this leave you as an investor? What should you do with your portfolio? That depends entirely on what you hold in your portfolio and what your investment strategy is. To try and make sense of it all, here are three things to consider as part of your strategy:
Keep calm and carry on
If you have a well-diversified portfolio and a long-term investment horizon, your most likely course of action is to just stick to your strategy and keep building a diversified portfolio. If you run to the hills and sell your investments, you risk missing out on chances that could end up costing you compounding returns down the road. As the old saying goes, “time in the market beats timing the market”.
Prepare your portfolio for volatility
If you just have one or a few stocks in your portfolio, you could consider diversifying your portfolio - i.e. spreading your investments across various sectors and regions to mitigate risks. This way you’ll lower your portfolio’s risk related to a specific company or companies and their circumstances.
There's many ways to diversify your portfolio. One is to buy a host of different stocks, which has its advantages. But it also has the potential disadvantage that it is time-consuming to find these stocks, and portfolios of a modest size cannot gain exposure to more than a few stocks. So, another way to go about it is to invest in ETFs, which are funds that trade like stocks. They can provide broad diversification with a single purchase and at low cost.
Seek election-driven opportunities for investing
For those with a more adventurous mindset, the election may also present opportunities for targeted investments. Finding sectors that could benefit from the election’s outcome can allow you to capitalise on these opportunities. If looking for opportunities to earn some added election-return fits your investment strategy, you could consider keeping some portion of your portfolio in cash, for example 10-15%. If the rest of your portfolio is well-diversified, this setup means you can grasp opportunities that arise from the election without putting your entire portfolio at risk.
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