Hello,
The US election has of course dominated the market narrative over the last week. Given you have all had ample opportunity to read and reflect on the developments, we’ll keep the below points hopefully succinct and high level for client conversations. It looks like a ‘red clean sweep’ with the White House, Senate and House of Representatives all going (or indeed staying) Republican. From an economic perspective, big things to watch out for will include:
- De-regulation (good days for banks and traditional energy companies)
- Lower taxation (taken as good news across equity sectors)
- Tariffs (likely inflationary so US dollar higher and US treasury prices lower)
- Immigration crackdown (likely inflationary via wage growth with smaller labour pool)
With the benefit of hindsight, as there often is with a big binary event, there were plenty of opportunities to take advantage of the above points with some ‘smart trades’. However, ex-ante (before the event) you would have to predict the event, predict the market reaction to the event, and predict when the market would react to the event. Getting all of this right is very tricky – even before you throw in a Fed rate cut, a massive Chinese stimulus package, and the collapse of the German government.
As active investment managers, with a predominantly multi-asset perspective, we will aim to take advantage of opportunities as they present themselves. However, when presented with binary, emotive, and hard to predict events, a steady hand can often be the most effective active choice.
As always, if you wish to discuss anything in this newsletter in further detail, please do get in touch.
