US Election 2024 playbook: How to position for elections?

Overview

The US presidential elections have been scheduled for 5 November 2024. Thus far, the race to be the next US president remains tight, with Kamala Harris having a slight lead of +2.0% ahead of Donald Trump. However, the race is still too close to call.

At this time in 2016 (1 Oct), then-candidate Hillary Clinton has a larger lead of +2.7% over Donald Trump. She led by +1.8% on election day and eventually won the popular vote by 2.8 million votes. The rest is history, with the catch being that the US President is not determined by a popular vote but on the basis of an electoral college, which leaves room for surprises.

The past two elections (2016, 2020) have also overestimated Democratic victory margin during the polls by +1.3% and +3.9% respectively. A look at current polling in the key battleground states also suggests that margins between the candidates remain extremely tight, with Trump having a slight +0.1% edge over Harris. Any significant closing-up from Trump in the overall polls may potentially drive some near-term shunning in risk assets on greater uncertainties over the presidential outcome.

Split government with a Democratic President may be best case for S&P 500

Apart from the presidential seat, 33 out of 100 Senate seats and all 435 House seats will be up for grabs in the US Congress. A divided government, where no single political party is able to control both the executive and legislative branches of the constitution, may lead to greater polarisation within the government and limit the success of any policy pass-through.

This could translate into a potential gridlock in fiscal plans, with stimulus likely to be downsized. However, corporates may cheer a divided government from the regulatory standpoint, while policy continuity in the form of the current status quo could also remove some uncertainty around significant policy changes. Past historical performance suggests that a split government with a Democratic President tends to be the best case for the S&P 500.

Positioning for a Trump win

US Dollar Index: Bullish. Import tariffs, tighter immigration laws and a larger fiscal stimulus may be inflationary and complicate the Federal Reserve (Fed)’s easing process. A surprise victory from Trump could support a rush in safe-haven flows to the US dollar as well (as seen in 2016).

Spot Gold: Bullish. Fears of a global trade war could drive safe-haven flows for gold – a lesson we can draw from 2018. However, gains may be more short-term and choppy, given the eventual pressures on gold from a stronger US dollar.

Defense stocks (US, European): Bullish. Trump is looking to raise defense spending by NATO members from 2% to 3% of the gross domestic product (GDP). The threat to remove military support for NATO may also create pressures for the allies to raise their budget. Any follow-through of Trump’s priority to pull out of NATO may call for the need to increase military outlays in the US.

Autos, Energy stocks: Bullish. Solar, clean energy stocks: Bearish. “Unleash American Energy” as Trump’s energy agenda, where he aims to end restrictions on oil, natural gas and coal. US auto industry may find some support on reversing regulations and the potential cancellation of Biden’s EV Mandate.

Financial, infrastructure, cryptos, big tech: Bullish. The de-regulation theme may benefit these sectors. He has previous history of easing financials regulations in 2018 and generally supports a lighter regulatory touch on artificial intelligence (AI). A red wave may be needed to push through massive infrastructure spending. Trump previously mentioned to push for a government stockpile of Bitcoin.

Healthcare: Bearish. Policies on both side seem negative for pharmaceutical stocks in general. Both parties aim to cap drug prices, with the push for reforms creating higher uncertainty around pharma companies' profits, but a unified government will be much needed for any successful policy pass-through.

Trump-related stocks (Trump Media, Geo Group, CoreCivic) Bullish. Immigration clampdown may benefit private prisons, which makes their share prices sensitive to Trump’s polling odds.

China, other emerging markets (EMs): Bearish. Trump’s aggressive protectionist measures may create pressures on trade-oriented Asian emerging markets, particularly China. The 2018 trade war suggests a re-diversion in trade as opposed to a full decoupling, with higher global inflation as the eventual outcome. Taiwan, South Korea, and Mexico may be sensitive to tariffs announcements, having high export exposure to the US economy. Stronger US dollar bearish for EMs as well.

Positioning for a Harris win

US Dollar Index: Bearish. Less-adversarial trade policies amid Fed’s easing may weaken the US dollar. Certainty around policy continuity may also drive less safe-haven flows for the dollar.

AUD, NZD, EUR, GBP: Bullish. A split government with a Harris presidency may suggest the status quo and policy continuity ahead. The passing of US election-related uncertainty may call for a drift higher for risk assets. Clarity over US relationship with its allies may also offer a slight boost.

Defense stocks (US): Bullish. Harris may continue to back Israel and Ukraine as US allies. Geopolitical conflicts may drag for longer, which may call for the need for more military support.

Energy: Bearish. Solar, clean energy stocks: Bullish. An opposite of Trump’s energy agenda. Harris administration will continue to work on better implementing the Inflation Reduction Act (IRA), which has a strong focus on investment in climate and energy. US will remain in Paris Accord. That said, EV policy may be more mixed with a split government, but general ‘green’ push should continue.

Infrastructure: Bullish. Financial, Cryptos, Healthcare: Bearish. Blue wave needed to push for massive infrastructure spending. Unified government may create uncertainty over healthcare reforms, with drug pricing policy as a key overhang. Harris may continue to advance the Biden Administration's agenda of tough financial rules. Crackdowns on the crypto industry during Biden administration may be seen as unfriendly.

Trump-related stocks (Trump Media, Geo Group, CoreCivic): Bearish. Unwinding of “Trump trade”. Harris’ push for more accessible pathways to citizenship may be more friendly for immigration.

China, other emerging markets (EMs): Bullish. More certainty over trade activities may drive relief flows for EMs. Diversification of supply chains outside of China to continue. Weaker US dollar bullish for EMs.