Watch, wait and avoid hype of US presidential election

Australian investors have been urged not to get caught up in the hype around this week’s US Presidential Election and to control their response.

Morningstar Australia’s market strategist, Lochlan Halloway noted that US presidential elections tend to cause volatility in financial markets and while investors can’t control this, they can control their own responses.

“Avoid getting sucked into short-term trades on the outcome of the election. Piling into bitcoin or ‘Trump Media & Technology Group’ (parent of Trump’s social media platform Truth Social and now a proxy for the likelihood of his re-election), is exactly the kind of thing I’d steer clear of,” Halloway said.

“But more broadly, if the market gets caught up in the noisy near-term and loses sight of the long view, this can present opportunities. Build a list of interesting companies, have a view on reasonable,” he said.

Halloway suggested that the implications flowing from presidential elections could be overstated, noting the reality of what had occurred following the election of President Joe Biden.

“Since President Biden’s inauguration in January 2021, the S&P 500 has returned almost 60%. Not bad in less than four years. But the biggest winner? It isn’t the tech sector, despite an impressive 200% total return on the back of the rampaging Magnificent Seven. Instead, it’s energy – traditional oil and gas stocks – returning almost 250%. “

“Rewinding to the early days of the Biden presidency, and who would’ve picked this? The new administration was focused on the renewable energy transition, and ESG investing was quickly gathering steam. But a war in Ukraine sent energy prices surging, and one of the biggest themes in markets during the Biden years was entirely contrary to conventional thinking,” Halloway wrote.

“This isn’t an isolated case, and we also find surprising market outcomes during Trump’s presidency. Trump ran an ‘America first’ platform, and this should’ve benefited domestically-focussed industries. But the bellwether for this theme, US small caps, underperformed the globally-oriented large caps in the four years from 2017. Key pillars of Trump’s infrastructure agenda never came to pass, and big bets on classic ‘Trump trade’ sectors, like small-cap value, financials or energy, would’ve resulted in significant underperformance.”