US election reaction: patience required
With a conclusive result yet to be announced, we outline what this may mean for investors.
Uncertainty has been something most of us have been living with all year, and in keeping with much of 2020, just when we, as investors, needed a decisive US election result, we don’t have one.
The 2020 race for the White House is unfortunately not over yet, denying investors the clarity which they typically crave.
What does this mean for investors?
At the time of writing, the outcome remains on a knife-edge: the incumbent, Donald Trump, and his challenger, Joe Biden, are neck-and-neck in crucial battleground states.
Once again (remember 2016) it looks as though Donald Trump has done better than the polls were predicting.
But if there’s one thing financial markets don’t like it is uncertainty. That said, we believe they will move decisively once the outright winner is known. As a result, we outline the short- and long-term implications below:
In times of uncertainty, investors typically flock to more defensive types of investments, known as safe havens. As our chief investment officer Sonja Laud says, ‘rising virus infections do not mix well with political inaction.’
In the case of US investors this may mean:
- US government bond prices may rise – a bond is effectively an IOU for which the lender receives a fixed amount of interest from the government over a period of time
- The dollar, traditionally seen as a ‘safe-haven’ currency, may also strengthen
- Sentiment may be negative with regards to shares in US companies
Of course, the market outlook will likely shift quickly once the result has been finalised.
Beyond the near-term question of which party is likely to invest the most cash into an ailing US economy, we believe the eventual outcome will also have important implications for broader investment themes.
These are most likely to be the move towards a low-carbon economy (remember, Joe Biden is more ‘green’ in his politics than Donald Trump and likely to reinstate America’s place in the landmark Paris climate accord) as well as the impact of populism on global politics.
Finally, the context of COVID-19 is critical over the longer term, with the successful rollout of a vaccine pivotal to a return to something approaching normality.
Investing in an age of uncertainty
While this key event will have to be decided at some point, we believe the longer-term outlook remains uncertain on several fronts, from virus developments to Brexit talks.
Even though the lack of immediate clarity is frustrating, it also reflects the broader age of uncertainty in which we live. Investors will need to hold their nerve over the coming hours and days, with a clear premium on patience.
Remember, the value of any investment is not guaranteed. The value of investments and any income received from can go down as well as up and you may not get back as much as you had originally invested.