As the US presidential election approaches in November, analysts predict increased volatility in the stock market due to political uncertainty.
The investment bank does not advise making significant changes to strategic portfolio allocation based solely on elections, but does recommend considering managing election risk in the short term. “We expect stock market volatility to rise (as it typically does) as Election Day approaches due to political uncertainty,” the analysts said.
The bank presents two baskets of stocks that could benefit from the most likely election results: a Trump victory in the GOP Congress or a Biden victory in a split Congress.
These stocks serve as benchmarks for expressing tactical election views and hedging election-related risks.
Under the Trump administration, the focus will be on trade relations, higher tariffs and looser regulations. Higher tariffs could benefit domestic producers in sectors such as steel, lumber, aluminum and solar panels.
Additionally, the traditional energy and financial sectors could benefit from a more relaxed regulatory environment. “Less enforcement of antitrust laws could spur increased M&A activity,” analysts explain.
They believe a second Biden administration would likely maintain the status quo with potential corporate tax hikes to fund spending if Democrats capture both houses of Congress, although that scenario is considered unlikely.
The bank says Biden’s victory in a divided Congress will depend on executive action and regulatory oversight of climate change initiatives. Recent U.S. Supreme Court decisions limiting the regulatory powers of federal agencies could limit Biden’s options without congressional support.
The bank cautions investors against positioning portfolios based on specific election results due to the high level of uncertainty. Instead, they recommend being flexible and adjusting portfolios as new information becomes available.