US President Joe Biden’s recent decision to not seek re-election in November, instead endorsing Vice President Kamala Harris for the Democrat vote, is likely to see markets carefully dissect the new presumptive nominee’s priorities in the weeks ahead, according to investment executives.
Last month, following the first presidential debate between Biden and former US president Donald Trump, the so called “Trump trade” gained ground, positing industries like fossil fuels and cryptocurrency could emerge potential winners with a Trump presidency.
In a market note on Tuesday, Chris Iggo, chief investment officer, core investments at AXA Investment Managers, described the Republican policy program as an “interesting” read, with policy proposals that suggest a mixture “of trade protectionism, deregulation, fiscal largesse, anti-green energy, and social conservatism”.
With this, investors looking for opportunities in the world’s largest economy may identify potential Trump trades in oil and gas industries, artificial intelligence, cryptocurrency, and industries that will benefit from protection, like automobiles, and deregulation, like pharmaceuticals, he explained.
In conversation with InvestorDaily, Betashares chief economist David Bassanese outlined Trump trades could include higher US bond yields and a potentially stronger US dollar, drawn on the view the presidential candidate will run a larger budget deficit and cut taxes.
A potential Harris win, however, “could be the reverse of that”, he said.
“In terms of the macro perspective, it’s not tax cuts […] so that would mean lower bond yields, maybe a softer US dollar, and the reverse of the Trump trades,” Bassanese said.
“In terms of the micro perspective, the biggest difference between the two candidates are policies with regards to green energy. Trump is for fossil fuels and oil, whereas the Democrats are for ongoing investments in solar and wind.”
According to the executive, Harris remains “a bit of an unknown force”.
“I think markets will be watching carefully, over the next few weeks, what she does prioritise. We don’t really know much about her,” he said.
“She’s obviously been under the shadow of Biden for a long while, so we’ll see what she looks to prioritise, but in some way, you’ll probably get less fiscal stimulus with her, certainly less tax cuts, and more focus on green energy transition rather than investing in the oil sector, as under Trump.”
Global X’s product and investment strategist, Marc Jocum, also believes markets will likely learn more about Harris’ policy platform as the weeks unfold, telling InvestorDaily it’s difficult to ascertain if she will mirror the policies of incumbent President Biden.
US oil and gas stocks are likely to be impacted, given her tougher stance on those types of companies, he said.
“She’s a lot more in favour of green energy companies, so environmental and clean energy companies involved in that may benefit,” Jocum stated, adding there could be strong support for electric vehicles through tax credits, which were established through the Inflation Reduction Act in 2022.
Looking at tech, which has proven to be one of the biggest performers for international share markets in the last financial year, he admitted there remain uncertainties over how a Harris administration would approach the sector.
“There could be ongoing regulatory scrutiny with these companies – Harris is a little bit more pro-competition, which could impact big tech – but a lot of the world’s largest tech firms are also headquartered in her home state of California, so it’s hard to say how it would go,” he said.
Additionally, there remains an element of hedging to be considered with a potential Harris win. This, he said, could have a “lot of impact” for Australian investors with US stocks in their portfolios.
“If Trump does get in, it’s likely that a lot of the reforms that will come in could lead to a US dollar appreciation, which would be good for stocks that are unhedged,” Jocum said.
“Whereas, if Harris comes in, it may not experience that same level of appreciation.
“If there is a depreciation in the US dollar, and a rise in the Australian dollar, particularly if the US Federal Reserve looks to embark on an interest rate decline and the Reserve Bank of Australia increases rates, that would likely benefit hedged investments.”
Navigating volatility
Looking ahead, Jocum observed market volatility could emerge in the months leading up to November. However, the US economy is “ticking along quite nicely” and market movements linked to the election look to be short-lived, he said.
“We’ve seen 13 straight quarters in the US where profit margins among companies have been in excess of 12 per cent,” he pointed out.
Moreover, in terms of historical trends, “every time there has been a US election, the share market has returned a positive return of around 11–12 per cent”, he said.
“So, it doesn’t really mean the election is going to have drastic impacts on the share market in the long term, given there’s other factors in play like interest rates.”
Betashares’ Bassanese, too, urged investors to not be “overly concerned” with volatility. He, instead, identified the macroeconomic picture of interest rates, inflation, and economic growth as key considerations for investors in US markets.
“I don’t think [the elections] are as important as what’s happening with US monetary policy and the macro picture,” he said, adding that market volatility could, in fact, continue beyond November, depending on the election outcome.
“Leading up to the election, maybe there’s a risk of volatility, but certainly, immediately after, if it’s a close result.
“There’s a risk, as we’ve seen now in several elections, of that extended period of uncertainty as various results are subject to court cases,” Bassanese said.
He cited disputes over election results that have been observed in the past, such as calls for a vote recount in the presidential election contest between George W. Bush and Al Gore in 2000, and more recently, in the 2020 election, when then-incumbent president Trump pursued efforts to overturn the result.
“There’s that risk of some days, if not weeks, of uncertainty,” Bassanese said.
