Investment tips and takeaways as US election approaches

Electric cars for export at Yantai port in China's Shandong province. Picture: AFP

In the business of wealth management, it’s vital that advisers cast their information net wide.

For us that means taking the time to visit global centres of finance throughout the year as a way of gaining fresh perspectives and ideas. Especially in a year of world elections such as 2024, it enhances our decision-making and asset allocation choices.

As the final 50 days before the US election began, I made visits to industry leaders in Boston, New York and LA. One of my insights from these meetings is that investors considering scenario analysis post-election can easily be blinded by the individuals in the race.

Voters are not only investing in either political candidate. In this case, they are also investing in corporate America, which is global in its reach and operations.

There was broad consensus that the Democrats will win the House, and the Republicans the Senate. The individual presenter’s political bias determined who they favoured for the presidency. There was also broad consensus that the election would be close, despite people on both sides of politics agreeing that Harris would win the popular vote. However, when it came to electoral college votes, the feeling was that as few as 100,000 votes in the swing states of Pennsylvania, North Carolina, Arizona, Georgia, Michigan, Nevada and Wisconsin would determine the outcome.

Some months ago, I highlighted the importance of “looking around” scenarios. By that I meant having a broader and perhaps longer-term view. In contrast to that approach, making a prediction on the US market based on an emotional view of a presidential candidate is fraught with danger.

Since the S&P 500 was launched in the US in 1957, it has closed higher at the end of a President’s term than at the start for every president except George W Bush. He had both the dotcom bubble and 9/11 to contend with!

In November this year, a win by either candidate could lead to higher inflation and the potential for the Federal Reserve to reverse the direction of interest rates later on in 2025 or 2026. Why I say “could” is that it depends on whether or not the candidates carry through on their policies now – or on what is being ­predicted.

Trump is proposing to increase tariffs to 10 per cent across the board and 60 per cent with China. This could lead to retaliatory tariffs from the EU and China.

Tariffs in the US presently average 3 per cent and if Trump’s tariff proposals were to be introduced it’s estimated they would increase to an average of 16 per cent. This would not just have a one-off inflationary effect but would lead to more prolonged inflation. That’s because companies cannot relocate their manufacturing facilities overnight – for instance from China to another country location. Even if this could happen quickly, it would also be expensive.

Harris is expected to have an extensive economic agenda but it hasn’t been laid out as yet. Whatever it looks like, it may also be costly and potentially include a reversal of the Trump tax cuts when they expire. It’s expected that both candidates will also continue spending. That means budget deficits and pressure on the Fed when it comes to monetary policy.

Since late 2023, markets outside of Australia, with the US leading them, have had a stellar performance. We have seen a rally led through the US in large caps, quality and growth.

While we have already seen EU rate cuts and more to come, in mid-September, the US rate cutting cycle is only just getting under way.

However, in Australia, I don’t think we will see rate cuts until the end of the first quarter next year. That’s due to the persistence of inflation and because interest rates were not lifted here as much as those in other developed ­countries.

Inflation is not entirely under control globally, either. Yes, the trend is down, and I believe in the US it will get to 2-3 per cent.

But I expect it to stay closer to the 3 per cent as services and housing continue to pose challenges.

Banks in the US are acting late in the cycle. They are holding back from lending at previous levels, and stress, especially in credit cards, is increasing.

So what is the key takeaway looking into the final quarter of 2024, against this world backdrop? In my view, it all points to a soft landing rather than a recession at present.

A recession has been predicted for well over a year, and markets could still enter a period we need to look closely at in late 2025. While many have been calling a recession it’s worth looking at a similar time in our recent history.

In 1993/94, we experienced a rate hiking cycle and a soft landing. Not only did we escape a recession but, due to technology and innovation, instead there was a period of growth.

What we are experiencing now is a lack of conviction among investors. Many simply have not believed in the US market rally of the past 12 months.

The months of September and October are generally weaker and more volatile in markets. Hedge funds are not betting against technology, and therefore use any weakness to ensure you have a quality and growth exposure to equity markets.

My final message is to reiterate the importance of remaining diversified and ensuring discipline around asset allocation, especially as volatility returns.

Will Hamilton is the managing partner of Hamilton Wealth Partners

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