With political uncertainty looming, investors must stay informed and be prepared for potential market shifts.
Economic policies at stake
The US elections is not just about who will sit in the White House for the next four years, it’s also about the policies that will shape the US economy. Depending on the election outcome, we could see shifts in corporate tax rates, regulatory reforms, and government spending, all of which can influence market sentiment and financial flows.
For investors, this means being ready for possible changes in key sectors. A pro-business administration could lead to market-friendly policies such as corporate tax cuts and deregulation, which may boost equity markets, particularly in sectors like technology, healthcare, and financials.
Conversely, a more progressive government may emphasise increased spending on social programs and infrastructure, presenting potential opportunities in renewable energy, green technologies, and construction.
Potential tariff policies under Trump
If former president Donald Trump returns to office and returns to his previous stance on favouring local manufacturing, it may lead to a renewed focus on protectionist trade policies, including the possible reintroduction or expansion of tariffs.
During his previous term, Trump implemented broad tariffs on imports, particularly targeting China, which led to trade tensions and market volatility.
However, historically, Trump has shown a willingness to strike bilateral deals with countries such as Japan and South Korea, potentially giving certain allies tariff exemptions.
Tariffs can distort markets and can have an impact on global supply chains, increasing costs for manufacturers, creating ripple effects in sectors like technology, automotive and agriculture.
Investors concerned by potential trade issues should stay informed and consider global diversification as part of their strategy.
Other global elections adding to market volatility
While the US election often take centre stage, several other significant elections around the world in 2024 have already taken place, including in Germany, Poland, Italy, Argentina and India, the world’s most populous democracy.
With possible changes to economic policies, trade relations and regulatory reforms across the eurozone, Asia and emerging markets, global elections add to uncertainty in markets, reinforcing the importance of staying nimble and well-diversified in your investment approach.
Implications for global trade and currency markets
US foreign policy – particularly its trade relationships – has the potential to shift significantly depending on which party is elected. A more protectionist stance could lead to tariff increases, trade restrictions and global supply chain disruptions, potentially creating volatility in sectors such as manufacturing, automotive and consumer goods.
For Australian investors, this means keeping an eye on the Australian dollar (AUD) relative to the US dollar (USD). The USD’s value is often affected by US election outcomes, with a weaker dollar potentially benefiting Australian exporters, while a stronger dollar might impact commodity prices and global trade.
Interest rates and inflation pressures
The US Federal Reserve (Fed) plays a critical role in the global economy, but its policy direction is focused on supporting the US economy. Depending on the election results, we could see shifts in fiscal policy that may lead to changes in the Fed’s stance on interest rates and inflation.
A government favouring fiscal expansion may lead to inflationary pressures over the longer term. For investors with a focus on bonds, understanding the future path of US interest rates is crucial. Rising interest rates, should inflation concerns return, can negatively impact bond prices but may also present opportunities in sectors such as financials, which tend to benefit from a higher rate environment. Conversely, bond prices may rise as rates drop.
Navigating uncertainty: How to position your portfolio
Given the potential market volatility surrounding the US election, it’s essential to remain diversified and agile. Here are a few strategies to consider as we approach the election:
Diversify portfolios: US elections tend to have a ripple effect across global markets, but diversification, across asset classes and geographic regions for instance, can help mitigate risks.
Monitor currency movements: Movements in the US dollar can create opportunities in currency markets. On the flip side, adverse movements can also negatively impact returns. Consider leveraging risk management tools to help hedge against currency risks, particularly if your portfolio is USD-exposed.
Focus on quality assets: During times of uncertainty, it’s important to maintain a focus on high-quality assets with strong fundamentals. Companies with stable cash flows and robust balance sheets may be more likely to weather market turbulence.
Stay informed and flexible: Political outcomes can shift quickly and markets can react just as fast. Ensure that your portfolio is positioned to adapt to changing conditions and stay in close contact with your investment specialists for up-to-date insights.
Focus on long-term investing: Elections can bring near-term volatility. By having a long-term view, investors that can withstand near-term volatility may be better placed to ride out near-term shocks.
Conclusion
The 2024 US election is a pivotal event for global markets. Whether you’re looking to hedge your current investments or seize new opportunities, being prepared is key. Our team is here to provide you with the expert guidance and tailored solutions that can help navigate the uncertainty and position your portfolio for long-term success.
Peter Moussa, senior investment specialist, NAB Private Wealth
