With the US presidential election just days away , the political landscape is fraught with uncertainty, with Kamala Harris leading the Democratic Party after Joe Biden’s departure and Donald Trump gaining ground in the polls. Although some believe that the election results will be decisive for the future of the markets, the reality is more complex.
Big investors warn that predicting the election’s impact on markets is not as simple as it seems . Historically, political changes do not always translate into dramatic moves in financial markets, and many factors, such as long-term economic policies or global events, play a crucial role. Will stocks rise under Trump because of his promises to extend the 2017 Tax Cuts and Jobs Act , or would the economy suffer from increased spending? It’s not clear.
In this sense, although short-term volatility is possible, impulsive decisions can be risky. Is it time to make drastic changes? The answer, according to several experts, is: probably not .
Essential Questions for Investors Ahead of the US Election
During elections, uncertainty can lead to rash decisions. But according to Morningstar ’s Dan Kemp , instead of obsessing over who will win, investors should focus on questions that guide their decisions more strategically . Questions like “Am I diversified properly?” or “How will political volatility affect my risk tolerance?” are crucial to preparing a portfolio for unexpected changes.
The key is to tailor your portfolio not to a specific election result, but to your long-term personal goals . Both Fidelity and Vanguard stress that it is essential to avoid sudden changes in portfolios motivated by the political climate . It is essential to ensure that investments are aligned with the investor’s long-term plans, beyond any temporary events such as an election.
It is during times of instability that the importance of diversification becomes most apparent . Proper diversification not only protects against political volatility, but also offers investors an opportunity to take advantage of opportunities in different sectors that could be favored depending on the election outcome.
Possible scenarios: Trump or Harris?
According to analysis provided by ActivoTrade , the 2024 US presidential election presents three possible scenarios, each with significant consequences for different economic sectors.
First scenario: Trump wins with a Republican majority in both Houses In this case, Donald Trump would implement a policy of tax cuts and deregulation , which would particularly benefit the energy (oil and gas), defense, and banking sectors. With fewer regulations and a favorable tax policy, industrial sectors and small companies in manufacturing would also benefit. In addition, an increase in military spending is expected , which would boost companies linked to defense. ActivoTrade points out that ETFs such as the VanEck Defense UCITS ETF or the VanEck Gold Miners UCITS ETF could be attractive options under this scenario.
Second scenario: Harris wins but Republicans retain control of the Senate
If Harris wins the election but Republicans maintain control of the Senate , her ability to implement substantial reforms, especially in green energy, would be severely limited. This would favor big oil companies and utilities , sectors that would benefit from the legislative stalemate. According to ActivoTrade, in this context, major transformations towards clean energy would be halted, and sectors such as public services and traditional energy would continue to prosper.
Third scenario: Harris wins with a majority in both chambers
Complete control by the Democrats , with Harris as president and Congress under her command, would be the ideal scenario for the promotion of clean energy . Tax incentives and greater regulation in traditional sectors such as oil and gas would negatively affect them, while sectors such as green infrastructure, renewables, and technology would be the big winners. ActivoTrade mentions that companies such as Nvidia, Intel, and ETFs focused on infrastructure or semiconductors would benefit.
Strategies before and after the US elections
So what to do before the election? According to Morningstar strategist Dan Lefkovitz , the most prudent answer is “probably nothing.” The volatility surrounding the election can offer opportunities, but rushing to sell assets or drastically change a portfolio carries more risks than rewards.
After the elections, more defensive strategies, such as those proposed by ActivoTrade, may be useful. Reducing exposure in sectors vulnerable to regulatory changes or betting on more stable sectors, such as consumer goods and healthcare , can protect investors from subsequent volatility.
As the 2024 election approaches, political noise will be inevitable, but there is no need to react hastily . Volatility is part of the market cycle, and experts agree that the key is not to get carried away by the emotions of the moment. The election of the president has an impact, yes, but it should not be the only factor in deciding what to do with an investment portfolio.
