What will the U.S. presidential election mean for investors?


With just six days until the big vote, what will the U.S. presidential election mean for investors? 

Though polls consistently show Joe Biden ahead, numbers in swing states are tighter — giving President Trump a plausible shot at re-election. 

Few will have forgotten the shock of 2016, when predictions of a near-certain victory for Hillary Clinton turned into a clean sweep for the Republicans. 

The result caused ripples in currency markets, with the Mexican peso falling 13 per cent against the dollar. However, an anticipated windfall for construction firms — after Trump’s promise to ‘build the wall’ — saw shares jump 7 per cent. 

So what will this year’s showdown mean for the markets and investments? Here’s our guide…

HIGH DEMAND 

U.S. shares have had a strong ride during the Trump presidency, partly due to corporate tax cuts. 

And the boom in big tech stocks during the pandemic has seen Britons rushing to buy American. 

Baillie Gifford’s American Fund — with big stakes in ­Amazon and Netflix — is the most popular buy on Hargreaves Lansdown and Interactive Investor. 

As shares elsewhere have slumped, the tech-dominated fund has raced ahead, doubling investors’ money in under a year. 

But should investors take heed of President Trump’s claim — made during last week’s presidential debate — that a Biden victory will trash the markets? 

Analysts aren’t so sure, with many claiming that markets have already ‘priced in’ a Biden win. 

Nigel Green, head of financial advisory firm deVere Group, has seen cash piling into renewable energy and other sectors likely to benefit from a Biden presidency. 

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He says investors believe Biden could be better placed than Trump to deliver the big cash injection necessary to kickstart the U.S. economy. 

Democrats have already begun plans for a £2.3trillion ($3trillion) stimulus plan to boost demand and get businesses spending again, in the hope they win both the White House and Congress Rob Burgeman, an investment manager with Brewin Dolphin, says Biden’s plan to spend big on infrastructure could also be good news for some FTSE companies. 

He highlights the cement manufacturer CRH and construction-focused Ashtead Group — which do the majority of their business in America — as two of the stocks that would benefit.

FRESH SURPRISE?

Experts have written off Donald Trump before — but then had to eat their words. 

Polling analysts give the President a one-in-six chance of re-election, meaning investors need to be prepared for an upset. Even then, there’s a big difference this time around. 

Trump isn’t the big unknown he was in 2016 — and markets know what to expect. 

A Trump victory would be good news for oil majors and defence contractors — and would likely trigger a slump for China-focused funds — but the overall impact would be less dramatic. 

There is another possibility, though, that would be seriously bad news for investors. 

With the election set to be close, and an unprecedented number of Americans voting by mail, there’s a chance the result could be contested — as happened with George W. Bush and Al Gore in 2000. 

If everything hinges on one state — say Pennsylvania or Florida — the losing party might challenge the result in the courts, or force a manual recount.

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Talib Sheikh, a senior strategist with Jupiter Asset Management, says a disputed election would be the ‘worst result’ for investors, with weeks of uncertainty sending markets into a tailspin.

IGNORE REPORTS

When it comes to election nights, we’ve become used to seeing dramatic-looking graphs showing sudden shifts in currency valuations. Then when stock markets open we get excited reports detailing how they have responded to the result. 

In reality, these short-term headlines are more useful to professional traders — who bet on sudden movements in the market — than ordinary investors. 

Instead, investors need to think about the longer-term plans that the winning candidate is likely to pursue. 

Rob at Brewin Dolphin says those expecting a Biden win should look to funds focused on sustainability, such as Axa Framlington’s Clean Economy unit trust. 

The trust is less than two years old but has already delivered 30 per cent (before fees) for investors, and stands poised to do well under a President Biden.

BIG QUESTION

Whoever wins faces the same question: can they get the U.S. economy roaring again? 

Investors bullish about a big recovery should turn to one of the many U.S.-focused funds looking beyond Silicon Valley. 

Schroder’s U.S. Smaller Companies fund picks lesser-known stocks likely to thrive during an economic recovery. £10,000 invested five years ago would now be worth £17,000-plus. 

How it fares in the next four years will have consequences not only for investors, but also for the occupant of the White House.

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