With less than a week until the US election, markets have stayed calm. But the result could make quite a difference to some corners of the investment market. Moneycube examines the implications for your investment portfolio.
Markets are pricing for Biden
Right now, the markets are tentatively anticipating a win by Joe Biden. European investment giant Aberdeen Standard reckons there’s a 50% chance of a President Biden, with a Democrat majority in the House of Representatives and the Senate. And they think there’s a 25% chance of Biden winning, but the Republicans retaining a Senate majority.
Energy and tech would see changes
Both outcomes would likely mean tighter regulation of the energy and technology industries.
A Democrat sweep offers the prospect of a move towards a clean energy economy. The US remains both the world’s largest oil producer and consumer. Under Biden a shift of investment money into wind and solar seems likely, while the economics of US shale oil will remain challenging.
The big tech companies have powered the recovery in markets this year. But a question mark hangs over their market dominance.
Stronger curbs on what they can do can be expected. Some have even wondered if a breakup of some big tech companies is possible, along the lines of big oil companies a hundred years ago.
That might be bad news for FANG stocks in the short term – but it could also offer the chance of a more diverse and innovative tech environment with some of the mid-sized tech businesses able to compete on a more level playing field.
Markets have got used to Trump
Four years ago, markets approached a Trump presidency nervously. And Trump’s China and European trade wars have taken their toll.
But corporation tax cuts, and business-friendly policies have helped drive profitability and share prices too. It seems like markets could take a Trump win in their stride in 2020.
An unclear result is the worst outcome for markets
Of all possibilities, an unclear or disputed election result, is the worst from a markets perspective. In that event, it’s likely that there would be significant volatility until a resolution is found. A flight to ‘safe haven’ assets like gold and the US dollar looks likely in that case.
But the US has been through this before (for example in 2000), and it’s unlikely to be to investors’ benefit react strongly.
So what’s an investor to do?
While US politics may produce a lot of heat in the weeks to come, it shouldn’t make you walk away from your overall plan.
Here are three pillars of investing to hold on to in the weeks to come:
1. Hold a diversified portfolio
If you are invested in Europe and Asia as well as north America, and hold company shares as well as other assets like bonds, infrastructure, property, you have a natural protection against the ups and downs any single company share might experience.
Investment funds are a great way to achieve this level of diversification.
2. Hold your nerve
Don’t make knee-jerk decisions. Instead, stick to your investment plan. As with reacting too quickly during market falls earlier this year, the danger is missing out on the uptick once uncertainty reduces. The investors who profited from the recovery had a plan in place, and were ready to carry it out with investment accounts open and cash allocated.
3. Hold back
Zoom out to get a sense of proportion.
Seen close-up, events may seem dramatic. But remember that short-term volatility is an inescapable part of investing. In fact, a recent Vanguard article looked at the effect of elections on stock markets and found that the “impact on financial markets has historically proved to be negligible”!