Do markets prefer a Biden or Trump victory? What price volatility is telling us now
There are several key risks investors should watch for now, but one of the main uncertainties remains the outcome of the upcoming presidential election.
“I do think that right now, the market has their favorite, and that would be the incumbent, but I also think that the perception that a Democrat win would necessarily be bad for markets could shift quite suddenly, as we saw in 2016,” said Richard Laterman, portfolio manager at ReSolve Asset Management.
What the election has done is created an environment of risk that investors have put investors on the defensive, Laterman said.
“I think most people when they think about these uncertainties and the risk like the elections, they’re actually more concerned about protecting the portfolio rather than making a lot of money,” he said.
However, one thing is certain; regardless of which party wins, more stimulus is likely to be introduced.
“It seems to be one of the only few bi-partisan agreements in the U.S. seems to be that we need to spend more. I think the GOP isn’t necessarily the fiscally responsible party any longer, so it’s likely that we’re going to be seeing spending,” he said.
Even though markets seem to be favoring a Trump re-election, investor sentiment may change after the election, Laterman noted.
“Back in 2016, the previous election, there was a market-friendly candidate and there was a wildcard, and the wildcard won, and then markets had a brief correction and all of a sudden they were escalating to all-time highs and the narrative switched. So, even if you do get the call right and you do bet on the correct candidate on winning, you can’t bet that investors’ perspective regarding risk is going to continue to be the same as they were in the previous election,” he said.
The markets have priced in lower returns should Joe Biden win for a few reasons.
“I think a lot of that hinges on this idea of breaking up big tech…so I think that’s one side of the equation. The market does hinge a little bit on the idea that although it is a bi-partisan agreement, they will perceive the Democrats as having a larger appetite for spending,” he said, adding that more monetary stimulus may be inflationary.
On long-term investing, Laterman said that the environment for the next decade may very well be less favorable than that of the last decade, where stock markets saw the longest bull run in history before correcting this year.“We’ve seen valuations at very, very high levels…and bond returns as well, represented by ultra-low yields. I think it’s safe to say that whatever we’ve seen in the last decade will likely not happen again. It’s very unlikely that we’re going to see a next decade similar to what we’ve just experienced,” he said.