I have sat through many elections over the past 40 years or so and yet I can still be shocked. That a country that leads the world in technology can make such a Horlicks of an election count.
There is one result we already know: election organisers and pollsters have lost … again.
Of all years, this was one when America – when the world – needed a swift, decisive result. Now President Donald Trump is declaring that he has won and that no more votes should be counted. He is going to the Supreme Court, so we can expect lawyers to get rich again.
What does this mean for strategy? Well, whoever wins, the Republicans look like they should retain the Senate, so the ‘Blue Wave’ was becalmed. It probably means any further fiscal stimulus may well be more cautious. Dow Jones futures have moved down sharply, so cyclicals’ outperformance versus ‘growth’ and technology stocks is unwinding. The US 10-year bond yield is falling as well, so the bond market is telling us that fiscal expansion will be more limited. Both of these moves are pretty logical at the moment.
I’m not going to try to be too clever here. I still believe a focus on the long-term drivers suggests that digital technology, medtech and quality industrials give the right balance within our multi-asset portfolio funds’ equity allocations. The volatility we are likely to see over the next few days could be a fantastic opportunity to reduce our cash weightings.
Despite this embarrassing situation for the US, I still believe in the American economy and the ability of corporate America to continue to innovate and grow.
If Mr Trump does win, the equity market may well be soft for a few weeks or months. But at the end of the day it will mean the status quo remains, and that’s ok for US stocks in my view. Once again, emotions are running high. Yet don’t forget that the US economy and its stock market performed very well until the pandemic arrived. It’s important to keep a focus on the longer-term investment drivers this morning.
If Mr Biden wins, we should – hopefully – have a relatively smoother four years of governance for the American juggernaut. It would likely send bond yields and cyclicals higher too. During the campaign, Mr Trump, AKA the Apprentice President, dubbed Mr Biden “Sleepy Joe.” I would hope he would live up to the name if he wins – we could all do with some rest.
But if this drags on with a contested result, the markets won’t like it one bit.
