By Joel Kranc
It’s hard not to be bombarded with election news during these last few months leading up to November 5th. The media can’t help but play up the horse race analogies and swing state opportunities. But elections matter, as recent history has taught us. For investors, elections can help drive strategies and investment implications for years to come.
A recent survey from PGIM Investments shows that elections and geopolitical risks are top of mind for institutional investors. Fifty-six percent of large investors say elections are a factor in their portfolio decisions and 75% say their portfolios are moderately or well prepared for any repercussions stemming from elections in 2024.
Some feel that despite a seemingly large contrast in candidates as Kamala Harris and Donald Trump fight it out, there is little by way of major change. It’s still kind of evolving about what a Harris administration will look like,” James Sonne, head of government affairs at PGIM, said of the U.S. presidential election.
“But I think regardless, we don’t actually have a lot of surprises coming, and all of the kind of populists or protectionist stuff on this side of one administration versus the continuation of a lot of the policies on the current administration, are ones that investors are actually pretty well prepared for. And it’s not going to be as many plot twists as I think we’ve we looked at, particularly in 2016 and going forward.”
Canadian investors, according to CIBC World Markets, might do better under a Harris administration than a Trump one. The report says:
“Trade policy is now front and centre in the U.S. federal election, particularly for observers of Canada.” It adds that for Canada economic and investment issues are “less concerning, with fewer downside risks,” should Kamala Harris win. According to the report, Harris’s track record suggests she would be “clearly less protectionist than Trump, while likely retaining the protectionist tilt on trade with China.”
On the flipside, should Trump win, the report goes on to say that “the concern would be that the backdrop for Canadian exports would deteriorate significantly.” The report also suggested the Republicans’ protectionist promises may be largely more bark than bite.
“What gives us some comfort is that the most hawkish versions of Trump’s trade agenda would entail enough self-inflicted wounds that we suspect … these are threats aimed at leverage with trading partners, rather than a realistic depiction of where policy would head, and a populist pitch designed to appeal to voters in America’s industrial heartland,” it said.
When looking at certain sectors, like renewable energy, for example, there is a belief that a pullback on policies enacted by Biden/Harris could mean more investment in Canada. “We believe that U.S. election uncertainties could result in some investors shifting their focus to Canada,” RBC Capital Markets analyst Nelson Ng wrote in a note to clients. “Canada’s supportive renewables policies provide an attractive landscape for renewable energy developers.”
Interestingly, all this talk about elections and investment strategy can also be viewed as an academic exercise. In his market outlook paper, People Care About Elections, Markets Don’t, Invesco Global Market Strategist, Brian Levitt says, “U.S. presidential elections haven’t historically affected markets or the economy, despite who or which party wins.”
He cites statistics that show the S&P 500 Index has delivered an average annual return of approximately 10% since it started in 1957 through both Democratic and Republican administrations. The US economy also expanded around 3% during that period. The stock market’s return was negative for a presidential administration only when the country was in a financial crisis (2008) or experiencing a stagflationary spiral (1973).
Overall, he states, investors would be better off staying invested and that a so-called “partisan” portfolio underperforms. In the end, the stayed and boring diversified portfolio that looks at the long game may always be the best bet, even in an election year.
