DM Monitoring
NEW YORK: Four years after Donald Trump’s surprise presidential victory roiled markets, investors are prepared for short-term trading turmoil and major long-term policy shifts, on the eve of U.S. election.
Investors could confront dramatically different paths for the country on taxes, government spending, trade and regulation depending on who wins the White House, the Republican Trump or Democratic former Vice President Joe Biden.
Biden is ahead in national opinion polls, but races are tight in battleground states that could tip the election to Trump. And perhaps the outcome most likely to shake markets – at least in the near term – is no immediate outcome at all. “At this point, markets fear a contested election,” said Kristina Hooper, chief global market strategist at Invesco. “Anything other than a contested election, a decisive victory in particular, would be good news for stocks.” For weeks, market moves have indicated investors are betting on a “Blue Wave” by which Biden becomes president and Democrats capture the U.S. Senate and retain a majority in the House of Representatives to gain full control of Congress.
That includes a steeper yield curve and weaker dollar on expectation of a fiscal stimulus package and gains for industries expected to benefit under Biden such as green energy and solar stocks. “If the Senate goes ‘blue’, I think rates move up and that will help the financial services sector tremendously,” said Peter Bortel, general partner at Bortel Investment Management. “My investments are long-term and I think we benefit from that scenario.” Over a two-month period that ended on Wednesday, a “Biden basket” of stocks created by JPMorgan gained 4.5% versus a 16% drop for a “Trump basket.”
But in the run-up to the vote, analysts have pointed to concern about over-confidence in a Biden win, and are mindful of the violent asset-price swings in 2016 when investors were expecting a Hillary Clinton victory.
Stocks saw big moves last week as investors pointed to uncertainty about the election outcome, as well as concerns about the lack of a stimulus deal and mounting coronavirus cases.
Hedge funds have been shaving off some risks, according to Oct. 21 research by Lyxor Asset Management, with U.S. long/short equity strategies “cautiously positioning” on a Democratic win.
Shawn Kravetz, chief investment officer of Esplanade Capital, said his hedge fund has bet on solar stocks but also has “some thoughtful and creative hedges in place” so he is not taking “undue risk.”
