In our 2020 outlook (the one with the shortest shelf life ever – for obvious reasons), we argued that the US elections would create a wall of distracting noise and headlines but not move the needle for investors. The only scenario that would change this picture would be a sweeping win for the Demo-crats, i.e. if they won both the White House and Congress overall.
- Eighty days until election day – the US electoral race is on. The outcome is more open than ever, with a Democratic sweep looking possible. Take on some satellite positions.
- Yields of long-dated bonds may rise due to the summer oversupply. Yet the broad-based shift away from growth stocks is not confirmed yet. Euro strength is broadening.
At the beginning of 2020, the odds of that happening were less than 5%. Fast-forward to today: with less than 80 days to go before 3 November, our analysts have run the numbers, and the odds of a Democratic sweep have jumped to 25%. The trouble with such a scenario analysis is that it is hardly investable. With a 75% chance of the scenario not materialising, it is not advisable to adjust your portfolio as if you were dead sure, not to mention the fact that the election mood tends to swing heavily the closer we get to the event.
How to deal with uncertainty?
We think it is time to honour some investment themes that may benefit in the case of a Democratic sweep, but they should have a sound fundamental background on their own – in case another outcome pre-vails. And in terms of size, the position should not dominate (yet). Let us call such themes ‘satellite positions’. These can be found in many sectors – energy, healthcare or information technology. However, let us highlight one of our Next Generation themes to make the point – Future Cities. Our specialists claim that the current global health crisis will help reshape urban centres worldwide and digital infrastructure will get a boost – irrespective of who has the say on Capitol Hill. Yet under Democratic rule, the timeline for change happening may be significantly shorter.
Our analysts see oversupply as the reason for higher rates, and growth stocks are still in the lead.
Putting the US aside, when will the run on stocks become more global?
The jury is still out on this. Rising yields of long-dated bonds would be a strong signal for growth to pick up. So far, our analysts see oversupply as the reason for higher rates, and growth stocks are still in the lead. In contrast, euro strength has started to signal that something is on the move.
What is going on in the markets? Julius Baer’s experts share their views.