Morningstar's "Perspectives" series features investment insights from third-party contributors. Here, Mark Dampier, Head of Investment Research for Hargreaves Lansdown, looks ahead to the US election.
Another landmark event is almost upon us: the US presidential election. This time the election has had more than its fair share of media coverage given the choice of the two protagonists. My bet is for a Clinton victory, although I also thought the UK would vote to remain in the European Union on June 23.
Many investors consider repositioning their portfolios before such an event, however, there are two problems with this. Firstly, if the outcome does not align with your forecast, you are likely to have positioned your portfolio incorrectly and lost money.
Secondly, even if your prediction was correct, the effect on your chosen assets does not always turn out the way you anticipated. For example, investors who expected we would vote to leave might have been cautious and increased their cash levels, but did not invest immediately after and missed the ensuing market rally.
Market Reaction and US Interest Rates
A Clinton win would probably see little reaction in currency or stock markets. The highly anticipated interest rate rise in December is by no means a certainty and I’m not so sure it will happen whoever gets in. A Trump win could see the dollar weaken and a fall in the US markets which would reverberate around the world. A 10% fall would create a buying opportunity.
In reality, political elections seldom have a significant long term effect on the markets. Therefore, basing an investment decision on an unknown outcome, or even delaying your usual trading activity until after the event, is often the wrong course of action. Ironically, stock markets usually rise after such occasions anyway.
Similar to many others, I have no great insight into this election. Both candidates want to spend huge amounts of money, which is rarely a good sign as most governments do not have a great track record in spending other people’s money, while they will also have to contend with a large amount of public debt.
Demographics also play a big factor. As with many other countries, the US suffers from an ageing population who want fewer consumer goods and more in the way of social and health care. They are therefore takers from the government rather than givers.
Population dynamics also coincides with the dramatic changes in technology, as a new industrial revolution is hollowing out many of the lower- and middle-income jobs. Even McDonald’s have opened a fully-automated outlet. This is surely a sign of the times.
In my view, investors should spend less time worrying about the result of the US election and focus on the big changes in demographics and technology that are reshaping society. The US election is not nearly as important to your investments as you might think.
Disclaimer
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