FOR PROFESSIONAL INVESTORS AND/OR QUALIFIED INVESTORS AND/OR FINANCIAL INTERMEDIARIES ONLY. NOT FOR USE WITH OR BY PRIVATE INVESTORS. CAPITAL AT RISK. All financial investments involve taking risk and the value of your investment may go down as well as up. This means your investment is not guaranteed and you may not get back as much as you put in. Any income from the investment is also likely to vary and cannot be guaranteed.
Donald Trump is “very innocent”. Well, that was his claim at the court where he had just been pronounced guilty on all counts of paying hush money to a porn star before the 2016 election.
“This was a rigged trial by a conflicted judge who was corrupt,” he snarled afterwards. And so this election becomes even more astonishing to those of us watching from the other side of the Atlantic in a country gripped by its own – admittedly rather less salacious – election dramas.
Reading the headlines, it is easy to feel stressed about the outcome of the US presidential race (regardless of which side of the centre you lean). Is the victim here Trump or the rule of law?
Isn’t this the kind of undignified event and the associated rhetoric we associate with developing nations rather than the world’s leading power? Should we not also be concerned about a Democrat incumbent who is 81 and quite possibly losing some of his mental faculty?
Will an election result affect my portfolio?
US equities constitute about 70% of many global indices and funds1. You might be tempted to dial down your exposure. Do so with care. Those who sold down US holdings in November 2016, fearing a TV celebrity president promising bold populist action would be a disaster for the markets, learned a painful lesson in the subsequent four years. The S&P 500 rose 66%2. Since then, under Joe Biden, it has climbed another 55%3. Hardly any difference.
Many people complain that there is little between Starmer and Sunak on policy. But a fresh government here could prompt a broader change of perception, lifting a market that has been too easily ignored by international investors for too long.
The same point on policy and economic strategy may hold for the US. Trump and Biden are both focused on their own versions of a ‘Make America great’ agenda, saving jobs for blue-collar US workers. But I do not see a change of government in the US – a market too big to be ignored – changing perceptions dramatically. So, for investors, the consequences for the economy and markets are marginal.
It does mean, though, that at election time, candidates and their supporters have to exaggerate points of difference – and that can drive them to the fringe.
It can feel like we are standing in a room full of people shouting rudely at each other, making accusations and pledging increasingly eccentric-sounding promises. All this naturally distorts perceptions. Modern media does not help. To misquote a famous saying: ‘Those who do not read social media are uninformed. Those who do are ill-informed.’
A recent Harris poll asked Americans whether they thought the S&P was up or down in 2023, whether unemployment was at a record high or low and whether the economy was growing or in recession. The majority took the negative view. The reality was the opposite.
Restrained powers
It is a reminder to look through the rhetoric to the data and build your investment portfolio on economic arguments, not political ones. What matters is the direction of travel for the US economy and for the individual companies in which we invest. In this regard, there are plenty of reasons to feel positive.
Can a president seriously undermine that progress? I am not so sure. The truth is that a US president is not as powerful as he – or, hopefully, one day soon, she – would like to think.
Checks and balances in the American political system are such that people often complain that the White House incumbent is powerless to achieve anything.
Where presidents do succeed on an important policy it is usually because, underneath the rhetoric of conflict, there is some cross-party consensus – even if achieving a deal requires some drawn-out public haggling and behind-the-scenes political horse-trading.
We should add to this the fact that a lot more power resides at state level in the US than many of us over here usually recognise. It means I am confident in saying that the big economic issues, like fiscal stimulus and infrastructure spend, will not be fundamentally reshaped by whoever wins the race to the White House this autumn.
Stay calm
We have just over four more weeks of campaigning in the UK election. There are several months more of coverage to endure in the US presidential campaign. Frankly, it can be harmful to our mental health.
In such a feverish atmosphere it can be tempting to make rash investment decisions. If you are feeling the heat, take a deep breath. Step away from your smartphone. Turn off the news. And please do not try to shape your portfolio to anticipate or respond to the outcome of either of these elections. I am confident your portfolio will be better for it.
1https://www.msci.com/documents/10199/178e6643-6ae6-47b9-82be-e1fc565ededb
2Bloomberg, sterling, total return
3Bloomberg, sterling, total return, to 05/06/2024