The upcoming US election will, as ever, have wide-ranging consequences for not just America, but for most of the world. Policy on global relations, the environment, the economy, military and social issues could potentially change quite radically and these decisions could be especially crucial at this critical stage in the recovery from the COVID-19 pandemic.
In the immediate aftermath of President Donald Trump’s win in 2016, markets were caught out and were temporarily unable to find direction. Eventually, the narrative was set and cyclical stocks such as commodities, infrastructure and domestically-focused stocks started to excel, bolstered by his ‘America First’ protectionist agenda.
We have a clearer picture of the priorities and policies that are likely from each candidate this time around. Trump has made his agenda clear on numerous issues, and has given little sign of a diversion from these, and in Joe Biden and Kamala Harris we have moderate democrats who should not spook markets as some other nominees may have.
If we were to see a Trump victory in November, we would expect a continuation of the domestically-orientated policy, deglobalisation and frosty international relations. In investment terms, this means a bias toward smaller-sized companies in the US (which tend to serve domestic markets more than international ones) and more in traditional industrial sectors including defence, construction and aerospace.
A win for Biden is more likely to bring changes to environmental and trade policies and a warmer approach to international relations. The democrats have stated that they want to introduce a hefty environmental plan to boost clean energy, reduce the use of fossil fuels and improve infrastructure. For us this means sticking to globally-diverse investments as well as those serving the renewable energy space.
Whatever the outcome, the president will have to deal with the ongoing pandemic and revive an ailing economy, so any increases to taxes will likely be delayed. Government spending will have to continue at a substantial rate and supporting the labour force will be crucial.
We tend not to position our portfolios with a bias toward either side of binary events, but we have a high quality suite of US (and global) companies that are likely to thrive whatever the outcome, and some more specifically US-focused ones that are smaller in size, but have powerful competitive advantages in rapidly growing industries. We do not usually have much exposure to assets such as oil, which could prove to be highly volatile if President Trump achieves a second term. We are aware of these risks and retain the security of high quality companies and a wide spread of exposures across our mandates.