US shares lift – clawing back losses on eve of the Presidential election

Susannah Streeter, senior investment and markets analyst, Hargreaves Lansdown

On the eve of the presidential election US stocks have lifted, clawing back some of the last week’s losses, boosted by key manufacturing data showing a sharp rebound in activity. But share trading is expected to be relatively cautious with some investors holding back as polls remain tight in key battleground states. At the same time, virus cases are still climbing in many areas, adding to nervousness about the economic impact of the pandemic ahead of the vote. Democrat Joe Biden maintains a clear lead, but uncertainty is lingering and it could reach a level that US politics has rarely seen if the election is contested.

That uncertainty has been compounded by the unusual voting protocols enforced by the pandemic, which have already seen close to 100 million US citizens cast their votes before election day. This is likely to muddy the waters on election night even further, casting doubt on the exit polls. If the vote isn’t conclusive, there is likely to a protracted period of volatility on the stock markets until the outcome is decided.

If Joe Biden is successful and the Democrats take over the White House, personal and corporate tax rates are likely to rise, although he says only the wealthy will pay significantly more. By comparison Trump has cut taxes and regulations which many on the right believe boosts growth in the economy. Neither candidate though is likely to immediately thaw relations with China. On the face of it, one might think Trump would be viewed more favourably by financial markets but investors also like stability which is a key part of Biden’s pitch. Biden was Obama’s vice president when he presided over a strong stock market recovery following the last global crisis.

However, while we can make guesses about who’ll win an election, and then more guesses about how the stock market will react, that’s never normally a good idea. Not being invested in the US would have hurt investors’ performance in the past, but that doesn’t mean investors should overdo it and have too much in the US moving forward. The key is to spread the risks so your holdings aren’t over-dependent on one US election outcome or the other to prosper. But remember all investments will rise and fall in value, so there’s always a chance you could get back less than you put in.