US election: pantomime season begins early

As if 2020 hadn’t thrown enough at us already, the US Presidential election is now in day three and, like the Coronavirus, far from over. Overall turnout is projected to have been the highest in 120 years at 66.9%*, so there are a lot of ballot papers to count! And, at the time of writing, the outcome remains on a knife-edge, with four States yet to call – and all going down to the wire.
Stock markets, having priced in a Biden ‘blue wave’, have once again been wrong-footed by the misleading polls and, with no clarity over the result, like the rest of the world, they have to sit patiently and watch the early Christmas pantomime play itself out: Trump’s team has already claimed fraud has taken place and filed legal action in several states.

So what does it all mean for our investments?

“It’s inevitable that there will be some short-term uncertainty in stock markets while we await the final outcome,” commented Darius McDermott, managing director of FundCalibre. “But longer term, do markets really care who wins? I’d suggest not.

“The US is currently battling a recession and, whether fiscal stimulus comes from a Democrat or Republican win or we get more monetary stimulus from the Federal Reserve, the fact remains we will get stimulus. And the stock market will react to that, not a name.

“We also mustn’t forget that while the US will dominate headlines for a while, the election is not the only game in town and it’s not operating in a bubble – social or otherwise. COVID-19 will still have a huge impact on global markets for some time to come, as will the continued low yield, low growth environment.”

James Ashley, chief markets strategist at Goldman Sachs, gave us his initial reaction to the election in this podcast recorded the morning of Wednesday 4th November 2020:

Different outcome scenarios

While Trump can be as unpredictable as 2020 has proven to be, his style of presidency is now well known and, if he wins, investors can ultimately expect more of the same.

Had Biden won by a landslide, the impact on the economy could have been a lot a greater, as policy could have taken a change of direction.

But if Biden wins now, it is only going be by a small margin and, importantly, the Democrats don’t look to have gained control of the Senate. This means it will be hard for Biden to get changes agreed and many policies may have to be watered down. “There is every chance Biden could become a ‘lame duck’ president from inauguration,” commented Richard Buxton, manager of Merian UK Alpha fund, “with Senate Republicans able to put in place significant barriers to the implementation of his key policies.”

So is the US still a good place to invest?

Ariel Bezalel, manager of Jupiter Strategic Bond fund, is not optimistic about the economy. “Looking out longer term, regardless of the eventual victor any fiscal stimulus package will likely be subject to delays and obstructions, with a gap between when it is most needed and when the legislation is passed,” he said. “Moreover, any real economic impact from higher fiscal spending is likely to be short-lived and won’t lead to the reflation story that many are hoping for: the higher the public debt, the less impact government spending has on an economy.

“Tensions with China seem likely to escalate either way: a resumption of the trade wars under another Trump term can be expected, while Biden appears keener to address human rights issues. Meanwhile, more extreme monetary policy is on the horizon no matter what, further exacerbating deep societal issues such as income inequality and stark political divisions.”

But, as Rathbone Global Opportunities manager James Thomson points out, “Despite the ugly politics, we still believe the US should form the largest part of our portfolio, because that’s where the growth is. US companies have consistently grown profits more than four times faster than the rest of the developed world over the past 15 years.”

Funds investing in the US

Those wanting to invest in the US and gain exposure to the big tech companies could opt for the likes of AXA Framlington American Growth or T. Rowe Price US Large Cap Growth Equity, which both have five of the big six in their top ten**.

Those wanting to avoid the big tech companies could instead opt for Artemis US Smaller Companies or LF Miton US Opportunities.

For those wanting a more global approach, Fidelity Global Special Situations has 53.6%** in the US and Lazard Global Equity Franchise 58%**. The former includes the big tech, the latter avoids them.

*Source: BBC
**Source: Fund factsheet, 30 September 2020