With the upcoming U.S. election around the corner, investors are already making their bets on how the markets will react depending on who takes office. According to a recent survey of Bloomberg Terminal users, the prospect of Kamala Harris winning the presidency has investors feeling more cautious about stocks but more optimistic about bonds. This distinct difference in sentiment reflects broader concerns about potential economic policies from the candidates vying for the highest office.
The pulse of the investment community is clear: nearly half of the surveyed participants believe they would trim their stock investments should Harris win, with only 28% willing to increase their equity exposure. On the flip side, if Donald Trump were to secure another term, about half of those surveyed indicated they would reduce their bond holdings, illustrating the nuance of market expectations tied to these two candidates.
When reviewing the past, the general trend reveals equities tend to rise regardless of party lines, with data from Sam Stovall, chief investment strategist at CFRA Research, showing the S&P 500 has historically performed well under both Democrats and Republicans—averaging nearby 11% gains under Democratic administrations versus 7% under Republicans. This trend is worth noting as investors formulate their strategies leading up to the elections.
A noteworthy detail from the survey conducted during the Trump-Harris debate highlights how 54% of participants hadn’t positioned their portfolios for the election, reflecting uncertainty about the political climate. Interestingly, the discussion of past presidents suggests George W. Bush is the only one out of the last six to witness the S&P fall during his tenure, standing as a reminder of how external economic factors, like the Great Recession, can overshadow political outcomes.
With the Federal Reserve’s recent dovish outlook, bond prices may hold steady or even rise, indicating market confidence as fiscal plans outlined by candidates potentially pave the way for increased federal borrowing. This is particularly relevant, as both Trump and Harris are expected to push for policies resulting in heightened debt-to-GDP ratios. The survey suggests Trump’s plan to continue tax cuts could drive this ratio to its highest point since World War II, which raises eyebrows among analysts watching the fiscal health of the nation.
Interestingly, the outlook of institutional investors isn't solely focused on presidential candidates; they are also closely watching global markets, with about two-thirds expecting U.S. stocks to outperform their international counterparts. This expectation largely stems from enthusiasm surrounding advances in technology, particularly artificial intelligence, where firms like Nvidia and Apple are dominating discussions among market players.
Adding to the conversation about upcoming rate cuts, market expert Larry Berman has indicated there's certainty about the forthcoming cuts announced by the Federal Open Market Committee (FOMC), but the real question hinges on whether the cuts will be 25 basis points (bps) or 50 bps. The financial markets are already pricing an expectation of significant cuts: around 250 bps over the next year. Oddly enough, some fear this predicted, aggressive lowering of rates signals concerns about economic stability, with Berman stressing the importance of unforeseen market conditions.
The Taylor Rule—a principle meant for guiding interest rate decisions—suggests lower rates might be needed if GDP growth stalls significantly. Market interpretations of these fiscal notes will affect the overall investment climate. Investors, aware of this dynamic, might seek to rebalance their portfolios as both stocks and bonds react to shifting policies and favor cash until clearer patterns emerge.
While excitement swirls around technology stocks bolstered by the latest trends, some cautious investors warn against putting all trust solely on their romanticism for cutting-edge innovations. With the election looming, the health of the economy and fiscal policies set forth by the next president will likely influence market behavior for the next several years.
Finally, as pollsters collect data and analysts interpret it, one thing is clear: the Biden administration’s legacy, tied to its response during key economic pressures, highlights the complexity of electoral impact on market sentiments. The playbook for investors will continue to be reassessed as the dynamics of the presidential race shape expectations and financial strategies.
