US election result is NOT priced in by markets: How investors can still try to profit – and the risks

US election: Polls say outcome is a coin toss

Brace for volatility and stay alert for opportunities, say investing experts regarding today’s consequential US election.

With the US stock market making up more than 60 per cent of the global market, all investors have exposure to the US one way or another, so it has an outsize importance on portfolios.

The superpower either controls or heavily influences interest rates around the world, international trade via tariffs, corporation tax on the biggest global companies, and geopolitics (meaning, bluntly, whether we are at war or not).

With all that on the line, and more, financial markets have not priced in the result of the election battle between Democratic vice-president Kamala Harris and three-time Republican nominee and former president Donald Trump. 

It’s just too close to call.

Investing experts explain the stakes, the strategies you can pursue and the opportunities to profit below.

What you need to know about the US election

The race for the presidency is deadlocked in the polls. So is the fight for the House of Representatives in Congress, currently held by the Republicans.

The Senate, presently controlled by the Democrats, is likely to fall to the Republicans, but even that is not certain.

The two houses of Congress, the House of Representatives and the Senate, have an extraordinary amount of power to block what presidents want to do – especially if one or both is held by the opposite party to them, which is very common.

Bills need to be thrashed out and ultimately pass in both houses of Congress to become law, and they often stall or fail altogether because one or both won’t agree. This leads to gridlock, and can stop much legislation being passed at all for long periods.

The 435 members of the House of Representatives represent local districts, similarly to MPs in the UK, and are up for re-election every two years, during presidential elections and mid-terms.

Two senators from each of the 50 states make up the Senate and are re-elected every six years, with roughly a third facing voters at each presidential election and mid-term.

‘More recently, polling has shown a move towards Donald Trump,’ says Hal Cook, senior investment analyst at Hargreaves Lansdown.

‘This has meant investors becoming increasingly focused on the implications of a Trump clean sweep – where he wins the presidency, and the Republicans win majorities in both the House of Representatives and the Senate.’

He says that would make it much easier for Trump to enact policy changes.

‘Expectations are that many of his policies would be inflationary, potentially reducing the Federal Reserve’s ability to cut interest rates.

‘And that’s without trying to understand how the potential geopolitical impacts of a clean sweep might impact markets.

‘This has meant that yields on US Treasuries have increased, and prices have fallen over the last six weeks or so.

‘The 10-year US Treasury yield hit a low of around 3.6 per cent in mid-September. It’s back up to about 4.3 per cent.’

Dan Coatsworth, investment analyst at AJ Bell, says: ‘Unlike the UK general election where Labour had such a wide lead in the polls from the start and which made it easy to spot the sectors that could thrive or dive under its leadership, the US election is impossible to call.

He says Trump’s previous term as president is associated with a strong stock market run whereas the Biden administration – and Harris by default – is clouded by a period of high inflation and high interest rates.

‘That puts Trump at an advantage in the current election campaign as the cost-of-living crisis has been difficult for the general public and they’re looking for someone to find solutions.

‘Harris might need to better explain that Biden wasn’t responsible for high inflation – the real cause was global supply chain disruption during the pandemic, followed by Russia’s invasion of Ukraine.’

Coatsworth adds: ‘Trump may not be the solution to a high cost of living as his policies are likely to drive up inflation.

‘He wants to impose big tariffs on imported goods (60 per cent from China, up to 20 per cent on the rest of the world) which would significantly push up prices as the extra costs are passed onto the customer.

‘The big risk to markets from a Trump election victory is a trade war.’

Meanwhile, Coatsworth says Harris’s plan to raise corporation tax could hurt earnings and affect stock valuations, leading to lower share prices should she get into power.

‘However, Wall Street may prefer her approach to Donald Trump given the former president’s widely unpredictable nature.

‘The one thing stock markets hate is uncertainty and this could be elevated to the max by the return of Trump to the White House, given past form with him being impulsive and provocative.’

Financial markets have not priced in the result of the election battle between Democratic vice-president Kamala Harris and ex-president Donald Trump

We won’t know until we know… 

‘With the election being an effective coin-toss, betting on a specific outcome doesn’t seem sensible,’ says Hal Cook of Hargreaves Lansdown.

‘Instead, remember that diversification is your friend.’ With this in mind, he tips:

Invesco Tactical Bond (Ongoing charge: 0.72 per cent)

With likely bond market volatility, a diversified global bond fund could be a good option, says Cook.

Stuart Edwards and Julien Eberhardt invest flexibly, in all types of bonds.

They aim to provide some income and growth over the long-term, with a focus on keeping losses during periods of market stress to a minimum.

Their focus on limiting losses has meant that their fund has typically had less ups and downs than the wider market.

Their active management approach also means they can stay away from areas of bond markets that they think could perform poorly, and means the fund is highly diversified.

We think this is a great option to invest in a fund with experienced managers who are able to act quickly to take advantage of the global opportunities that come from market volatility.

Artemis Global Income (Ongoing charge: 0.88 per cent)

If it’s shares you are interested in, perhaps look to a fund that invests globally without as big a focus on the US.

Jacob De Tusch-Lec has managed this fund since launch in July 2010 and he aims to deliver income and growth by investing in companies from around the world. He favours developed markets and tends to invest more in the UK and Europe than global stock market indices.

He conducts detailed company analysis to identify those with a healthy amount of cash to either pay out dividends or buy back shares.

As a natural contrarian, De Tusch-Lec is not afraid to invest in out-of-favour companies with recovery potential alongside higher-risk smaller companies.

A focus on companies perceived to be undervalued is the overriding style which means the fund could work well alongside more growth-focused funds.”

Kamala Harris wins: Sectors which could benefit

Technology

‘Harris is an advocate for technological innovation which should be supportive for big tech firms despite the risk of greater regulation if she becomes president,’ says Coatsworth.

‘Companies active in artificial intelligence, cybersecurity and digital infrastructure could be the winners if Harris gets in.

‘That creates a tailwind for companies like Microsoft and Nvidia, names which have helped to drive strong US stock market returns over the past few years.’

Allianz Technology Trust (Ongoing charge: 0.70 per cent)

The investment trust’s manager Mike Seidenberg believes cybersecurity has the best runway for growth among the different parts of the technology space, says Coatsworth.

The trust has considerable exposure to this area, along with AI and machine learning.”

Green energy

‘Kamala Harris is on a mission to address climate change and environmental challenges in the US and investors might see her winning the election as generating a better backdrop for green companies to thrive.’

First Trust Nasdaq Clean Edge Green Energy ETF (Ongoing charge: 0.60 per cent)

Eighty-eight percent of its assets are held in US-listed green companies ranging from renewable energy operators, semiconductor groups, electric vehicle manufacturers and battery material specialists.

Donald Trump wins: Sectors which could benefit

Defence

‘Trump is expected to strengthen America’s defences which creates more opportunities for defence companies,’ says Coatsworth.

VanEck Defense ETF (Ongoing charge: 0.55 per cent)

It has 64 per cent of assets in relevant US-listed names. Its portfolio includes American government and military contractor Booz Allen Hamilton which is an intelligence specialist; Palantir Technologies which helps the US army with data insights; and Leidos which supports homeland security and is active in weapons systems research and development.

Oil and gas

‘A Trump election victory could also create a tailwind for domestic fossil fuel producers in an effort to fortify America’s energy security,’ says Coatsworth.

iShares Oil & Gas Exploration & Production (Ongoing charge: 0.55 per cent)

Approximately two thirds is held in US-listed assets, including a stake in EOG Resources which is one of America’s key oil and gas players.

Cryptocurrencies

‘In theory, cryptos could see the biggest and most immediate price action if Trump wins,’ says Coatsworth.

‘However, it’s interesting that the bitcoin price has been volatile in recent weeks, suggesting that some investors and traders might be waiting for a stronger signal that Trump will win before going all-in on the digital currency.’

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