Surely a winner must emerge: Markets brace for the outcome of tight U.S. election race

As markets await the outcome of today’s U.S. presidential election, experts say there are a number of different strategies investors are using to hedge against uncertainty as the race remains too close to call.

 

“Stop me if you’ve heard this before, but this is the most consequential election of our lifetime, and the two candidates are completely diametrically opposed,” Dennis Mitchell, CEO and chief investment officer at Starlight Capital, told BNN Bloomberg in a Monday interview.

 

Mitchell said that former president Donald Trump’s promised cuts to the federal corporate tax rate are broadly viewed as positive for U.S. equities, though Trump’s proposed tariff policies risk a ramp-up in inflation, which would cut into business profits.

 

Meanwhile, Democratic nominee Vice President Kamala Harris has signalled that her administration would raise the corporate tax rate, Mitchell noted, but despite the negative impact a tax hike could have on corporate profits, her plan is less inflationary in the longer term, he said.

 

As investors weigh the affects each candidate’s proposed policies would have on equity markets, many have opted to wait until the outcome of the election is decided before making any major moves, says David Dietze, managing principal and senior investment strategist at Peapack Private Wealth Management.

 

“There’s a group of investors who just want to move to the sidelines ahead of this election… and just want to be out of the market,” he told BNN Bloomberg in a Monday interview.

 

Dietze noted that Berkshire Hathaway Inc. chairman Warren Buffett, “arguably the most famous (and) successful investor on the planet,” has recently sold off large amounts of stock in U.S. large caps such as Apple and Bank of America.

But Tim Urbanowicz, head of research and investment strategy at Innovator Capital Management, told BNN Bloomberg in a Monday interview that despite lingering uncertainty, stocks have continued their bull run in recent weeks, suggesting that on the whole, investor confidence remains high.

 

“What you typically see in an election cycle is that leading up to election day, you tend to see equities selling off and volatility increasing… but this cycle has really kind of broken that trend,” he said.

 

“I think one of the big reasons why that is the case is that investors have decent clarity on a number of the issues that they see as pain points.”

 

Urbanowicz said that betting markets are placing the odds of a Democratic sweep in Congress and the White House – the election outcome that would hit U.S. stocks hardest, in his view – at less than 15 per cent.

 

“If you look at that in the context of the potential for corporate tax rates moving higher, changes to capital gains tax rates, things that investors don’t necessarily like, they see very low odds of that happening, which is why I think we’ve seen volatility suppressed,” he explained.

‘Winners and losers’

 

Urbanowicz said that no matter what happens in the U.S. Senate and House of Representatives following today’s vote, “there will be winners and losers” in the market depending on if Trump or Harris is elected.

 

Michael Currie, senior investment adviser at TD Wealth, told The Canadian Press last week that “depending what sector, what area you’re in, you’re going to have a favourite.”

 

While a Harris victory would likely provide a lift for renewable energy stocks, the oil and gas industry would fare better under a Trump administration, Brianne Gardner, senior wealth manager of Velocity Investment Partners at Raymond James, told The Canadian Press.

 

Urbanowicz added that investors trying to get ahead of the market and predict the election winner before all ballots are counted will have a hard time parsing through polling data and betting market odds, which don’t always align.

“I do think there is a slight bias more toward the conservative end with those markets… and you’re getting mixed messages, like if you look at the poll from Iowa over the weekend, it’s telling a much different story than what the betting markets are pricing in,” he said.

 

“So, overall, I think it’s going to be neck-and-neck, it’s going to be very close, and I would anticipate volatility kicking up in light of that race tightening.”

Markets will ‘ignore the noise’

Following the last U.S. presidential election in 2020, Joe Biden was not declared the winner until days after election day, causing prolonged uncertainty and volatility as Trump voiced his intention to challenge the outcome of the vote.

 

Mitchell said that if a similar scenario plays out this week, it won’t impact markets to the same degree.

 

“Markets are going to ignore all of the noise that the Republicans put out there, especially since Trump isn’t the sitting president. It was different four years ago when he had the ability to confound the process and the turnover,” he said.

“Let’s not forget that Trump went zero for 62 in his legal challenges, so markets will ignore all of that. What they will focus on is who is actually going to win.”

 

With files from The Canadian Press

 

 

 

 

This article was first reported by BNN Bloomberg