Investment discipline urged amid US election turmoil

Investors need to remain disciplined in the face of the uncertainties being created by the US Presidential election, according to MLC Asset Management chief investment officer, Dan Farmer.

In an analysis of the upcoming US poll, Farmer said MLC AM’s analysis of US presidential elections all the way back to the 1960 race, won by John F Kennedy, revealed that sharemarkets are usually relatively flat up to voting day, and then rally after the outcome.

“It’s possible there will be a repeat of 2016 in which Mr Trump finishes second in the popular vote but secures an Electoral College majority. Another possibility is a repeat of 2020, on steroids, in which Mr Trump refuses to accept the result and wages a protracted legal and political battle, right up to inauguration day January 20, 2025, to try to overturn the result,” Farmer’s analysis said.

“Financial markets will be hoping for a clear-cut result and acceptance of the outcome by the losing candidate, otherwise we can expect market nervousness, until the issue is resolved.”

Farmer then analysed Trump’s announced economic policy approach including his tariff proposals and corporate tax cuts and said that the tax cuts were the bigger deal.

“While we think the impacts of Mr Trump’s tariff plans may be relatively modest, we believe his proposed corporate tax cut may have far greater consequences for US economic growth, as measured by changes in GDP, as well as corporate earnings. If all his proposed tax changes go through, we expect a significant uplift to US GDP,” his analysis said.

“By the same token, cuts to corporate rates could increase US corporate earnings by 6%, if the corporate tax were to fall to 20%, and rise by 8.5%, if the corporate tax rate fell to 15%.”

Farmer said there is plenty for market participants to absorb not just on economic issues, but also the possibility of protracted political tensions if the election result is contested.

“That said, campaign policy is rarely implemented cleanly, if at all, as it’s so heavily dependent on the final composition of congress and the senate. Considering a range of outcomes is required by carefully discounting campaign rhetoric to various degrees. Estimating post-election policy impact, at this stage, is an exercise in awareness rather than high conviction action.”

He said that in these circumstances MLC Asset Management would be maintaining a disciplined approach.