US elections always elicit a whirlwind of excitement but investors should not despair whoever wins, according to experts.
This time around it looks likely for a re-run of presidents, with presumptive Republican candidate Donald Trump taking on incumbent Democrat Joe Biden for the White House race.
Regardless of the result, finance experts don’t seem too fussed, largely because portfolio managers don’t invest for a specific political environment, but try to select businesses whose outcomes are not reliant on a particular presidential candidate or party being in power, according to Anthony Kingsley, chief investment officer at Findlay Park Partners.
“We are often asked by investors about the impact of US elections on our portfolio, but the outcomes for our companies will not be materially swayed by the result of the election,” he said.
“Both Biden and Trump are supportive of the US government’s efforts to reindustrialize America and reshore supply chains closer to home, which should benefit domestically focused mid-cap companies (sub-$50bn market cap)”.
This seems in line with the predictability that markets yearn, and according to Mark Sherlock, manager of the Federated Hermes US SMID Equity fund, both candidates can deliver it, given that they have both served a term before.
Even if their policies were to diverge from what is anticipated, the manager won’t lose sleep over it. Trump would seem the riskier winner for markets, as a Biden win would continue the status quo, but there is less risk this time around than the first time the controversial former president was elected.
“The market just likes certainty or the avoidance of extreme outcomes and from that point of view, the presidential election, while it takes up some column inches in the media, is de-risked even more than usual, given the current candidates,” Sherlock said.
“Both of them already had presidencies and have shown what they would do with those. Also, whoever wins will face a very stern opposition, so their ability to enact radical legislation is highly limited, barring some very extraordinary political outcome.”
The market should think of this as “pretty good news”, announced Sherlock, and expect less dramatic outcomes from an economic and market perspective than many commentators fear.
However, he did have one reservation. Despite the “pretty good checks and balances in place to ensure that nothing too extreme is enacted”, there are 10 months still to run to election day, so “anything could happen”, he said.
This is a pretty big concern for Greg Eckel, portfolio manager of Canadian General Investments, who is getting ready for that ‘anything’ scenario.
While he did agree that it won’t be as bad as some seem to think and that both candidates have positive track records to look back to, he argued that conditions are too different today to sit down and relax under a rosy sky.
“With president Biden more of a known quantity, Donald Trump’s term as president, while filled with challenges and disruption, wasn’t bad for equity markets. All of the subsectors in the S&P500, except one, had very strong positive double-digit total returns in his period, including the first year of the pandemic,” he said.
“However, while equity markets performed well the first time around, conditions are very different today. Be ready for a rollercoaster ride in case there is a second time.”
If there is, he suggested “holding onto your hat or getting some of that sticky stuff that holds down his hair to keep grounded”.