What investments to hold before and after the US election?
Before the US presidential election, many investors are deciding how to proceed with their investments, which ones to get rid of, and which ones to look for. The situation is particularly complex due to the coronavirus pandemic, which is changing the normal distribution of markets. Historically, however, there are some sectors that have been successful after the elections, and especially today we should have more options on the table. On the other hand, the uncertainty related to the election and the valuation of some shares could encourage selling off at least part of the portfolio.
Not more than two weeks remain until the US presidential election will take place. Both candidates come with a diametrically different approach to leading the world's largest economy, and the reaction of the markets may be quite surprising after the results are published. So far, calmer Joe Biden is winning the polls, but some analysts still believe in Donald Trump. However, both candidates are expected to deliver the much-anticipated fiscal stimulus that the US economy needs to pick up faster in the past few weeks after the election. That in itself should be a sufficient boost, although Trump stands for a smaller package than the Democratic Party.
However, the current coronavirus pandemic makes this year's elections quite specific, which has already been reflected in the preliminary vote. It seems that voter turnout is already 10 times higher than in the last election. At the same time, recent days have shown that the growth of COVID-19 cases can force governments to reintroduce more widespread restrictions, which could trigger bigger sales. Investors will be very reactionary in this case and there will be several factors that may affect their expectations. Nevertheless, it is possible to estimate which sectors better be avoided in the coming weeks and which may be worth watching.
What investments better to avoid?
Every presidential election over the last 40 years has tended to cause assets to rotate from one part of the market to another. Nevertheless, it didn't matter so much who was elected. At present, the selection of potential sectors, which may not be so successful, might be a little easier. In general, however, investors are advised not to lose attention and hold long-term positions and thus not reduce the portfolio in any way.
Currently, however, it might be the last chance to get rid of investments in mining companies in the US, for example. These have been under strong pressure since the beginning of the pandemic and are losing despite the stable price of oil. If Joe Biden will be elected, it would be a clear signal of a further deepening of losses in the energy sector, as he pursues a policy of reducing the use of fossil fuels. Even if Trump is elected, these companies will not do very well, as demand continues to fall due to government restrictions and the supply of oil or gas is growing every day.
If Biden is elected, the financial sector could also come under pressure. However, it is not wise to bet only on his victory. At this time, the financial sector is facing declining margins due to low-interest rates and the expected increase in bad loans in banks' portfolios. Neither airlines will do well for a while, since they are currently operating far fewer flights, but with Biden's "bigger" fiscal package, their recovery could be faster, as well as could be the recovery of the entire US economy.
What is worth paying attention to?
Generally, stable value stocks can make the most sense. This is indicated not only by the current pandemic but also by low-interest rates and falling bond yields. Value stocks have even been very successful historically, growing traditionally in the next 6 months after the election. However, the strength of growth will depend a lot on the winner, but a diversified portfolio from different sectors should not have a bigger problem. However, the markets slightly favor Biden, and Trump's victory could surprise them.
Biden's victory would support the shares of "green energy" companies promoted by the Democratic candidate in the short and long term. However, Biden is also pushing for higher corporate and capital taxes, which should be rather negative for stocks. However, this may not be true, because of China. Many American companies benefit from very good relations with China, and Biden's pressure to end the trade war (but keep the pressure on China nevertheless) would pave the way for further profits. In the event of Trump's victory, these companies would also be successful, but under Biden, growth would be much faster. Examples of such companies include Apple, Salesforce, Broadcom, Nvidia, PepsiCo, and CVS Health.