US election the ‘biggest risk to markets’

The US presidential election is attracting significant global attention, not least for its likely seismic impact on global markets and inflation prospects, say market strategists.

Nearly three-quarters (74%) of responding strategists, as part of a survey of Natixis and its affiliated asset managers, see the US presidential election as the biggest risk to markets, with 60% considering the US election to more than likely hinder rather than support the market.

Further, more than two out of three (67%) respondents believe markets are too optimistic with nearly half expressing concern that geopolitical conflict (47%) and surprise inflation (40%) could bring the current market rally to a grinding halt.

Concerns over inflation stickiness remain, with just 7% of strategists believing the US Federal Reserve will reach its target – of 2% – by year’s end, while 77% see rates remaining higher for longer. The US inflation rate currently sits at 3%.

A little over one in three (37%) respondents expect two cuts in the US in the second half.

Relatedly, nearly half (47%) are concerned about the ‘politicisation’ of the Fed as it makes rate cut decisions.

Further, alongside broader geopolitical ructions, the respondents cited concerns over deteriorating US-China relations, with the prospect of a tariff war being raised. Moreover, 70% of strategists are pessimistic about near-term growth prospects and recovery for China’s economy.

Commenting on the results of the survey, Louise Watson, Natixis country head for Australia and New Zealand, notes that with strategists preparing for an unpredictable second half, demand for quality defensive assets and fixed income strategies to balance growth and provide greater protection for portfolios has grown.

“Our strategists are picking credit, favouring government and investment grade corporates over riskier high-yield and emerging market securities.”

She added that, with an increasingly divided geopolitical environment, opinions on sustainable investments globally remain mixed.

“However, in the next two to five years, half of those surveyed think the fate of sustainable investing will be determined by investors as consumer demand will outweigh political pressure,” Watson said.

Meanwhile, she added, 60% of strategists expect impact investing to continue to expand and 50% believe asset managers will need a net-zero commitment to win business in Europe and Asia.

The 2024 Natixis Strategist Outlook report is based on responses, received between end of June and early July, from 30 experts from Natixis and its affiliates.