How the US election could impact your investments

How are markets affected?

Before we explore what can be affected by the outcome of the US election, let’s take a quick look at what the history books can teach us. The good news is US companies have enjoyed average returns of 9.1% during election years, according to research by Fidelity*.

However, Denise Chisholm, Fidelity’s director of quantitative market strategy, pointed out the presidential election isn’t a notably market-moving event. “The election cycle is usually not the dominant theme of the market,” she explained. The economic backdrop at election time tends to matter more than who actually wins, according to a study by Shawn L. Snyder, global investment strategist at JPMorgan**.

Ultimately, the political and economic policies championed by the incoming President could also have an impact – positively or negatively – on the outlook for various sectors. For example, they may wish to increase tariffs in certain areas or even go to war. In any scenario there are likely to be corporate winners and losers.

Potential impact of tariffs

The Republican Party may take a tougher stance on tariffs and immigration, according to JPMorgan. It highlighted Trump’s suggestion of a broad 60% tariff on all Chinese goods entering the US, along with an across-the-board levy of 10% on products from elsewhere**.

“While a boost to US competitiveness may appeal to many, it could also come at a cost to American consumers,” it warned. “Bloomberg estimates suggest that Trump’s proposed plans would leave consumer prices 2.5% higher and GDP 0.5% lower after two years.”

Of course, the economic impact on the US could be greater if tariffs result in a tit-for-tat retaliation with its key trading partners. “Regardless of who wins the election, it seems that a more aggressive protectionist stance is likely to be adopted,” it added.

Avoid second guessing

While there are clear policy differences between the parties, JPMorgan’s analysis urges “extreme caution” for investors planning to position portfolios around an assumed result. “Even if an investor felt certain of the result today, what politicians say they will do in an election campaign and what they eventually can enact are often quite different,” it stated.

It’s also worth considering that many other factors will drive markets, aside from the election outcome and the future direction of policy. “What is happening in the economy tends to be much more important for markets than what is happening in the White House,” they concluded.

Three US funds to consider

Baillie Gifford American – The four-strong team at the helm of this fund focus on the small number of US companies that create exceptional returns. These stocks generally have exposure to the trends of the future. The largest holdings – which currently include Amazon, Meta Platforms and NVIDIA – account for just over half of assets under management***. We like how this team hails from very different backgrounds as it means they won’t all look at potential holdings in the same way.

Premier Miton US Opportunities – This actively managed multi-cap fund, which invests across a wide range of sectors and industries, has a greater emphasis on medium-sized companies than most of its peers. We think it has an excellent, well-defined investment process, while its managers have the flexibility and pragmatism to adjust the portfolio to changing market backdrops. The managers, Nick Ford and Hugh Grieves, also take a concentrated, high-conviction approach of between 25 to 45 holdings.

Artemis US Smaller Companies – The US is home to some of the world’s most innovative businesses – and this fund aims to spot these fast-growing companies at an early stage in their development. The argument is that smaller companies tend to outperform their larger peers over the long term, and the US is seen as particularly supportive of them. We like how the fund’s manager, Cormac Weldon, uses multiple sources of information to generate ideas and validate potential holdings.