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What the US election means for your investments
Listen to this week's Which? Money Podcast for expert advice on how the election could impact your portfolio
For many, Donald Trump’s victory in the 2016 US presidential election came as a shock, triggering a panicked sell-off in the stock market. With the current election poised on a knife edge, the result in November could create discomfort for investors as they watch their portfolios churn.
The Democratic candidate, Kamala Harris, is fractionally ahead in the polls but the result is far from certain. Both Presidential hopefuls have their own vision for the world’s leading economic superpower. Markets are preparing themselves for either outcome – and you should too.
Read on to find out what the election result could mean for your investments, and check out our latest episode of the Which? Money Podcast.
Please note: the content contained in this article is for information purposes only and does not constitute financial or investment advice. If you're new to investing, we recommend starting with our beginner's guide.
Which? Money Podcast: the US election and your investments
In this week's Which? Money Podcast, we're joined by AJ Bell's investment director Russ Mould to discuss the US election.
Do elections matter for investors?
In the US the answer boils down to ‘sort of, but not really’.
Although the market initially panicked in reaction to Trump's 2016 win, the instability was actually short-lived and over the next six months there was a sizeable rally.
To give another example, looking at the US stock market since 1953, $1,000 invested in the S&P 500 only during Democratic presidencies would return $62,000 by 2023, versus $27,000 under Republicans, according to research from the Bespoke Investment Group.
But if you’d ignored the politics and remained invested throughout, your original $1,000 investment would be worth nearly $1.7m. Politics matter, but markets are more often influenced by macroeconomic conditions such as interest rates and inflation.
‘It is important to note that politics can only influence the economy so much, and the actions of the US Federal Reserve will still be a key factor in how the US stock market performs,’ says Sam Benstead, fixed income lead at Interactive Investor.
‘If the central bank feels it can cut interest rates without creating inflation, then this will be cheered by markets, but if interest rates stay higher than anticipated and inflation begins to rise again, this would have a negative impact on shares.’
- Find out more: what is investment risk?
What if Trump wins?
The winner of November’s election, then, is unlikely to have much of an impact on the overall market but could impact individual industries.
If Trump reduces immigration, this would curtail the size of the workforce in the short to medium term and could cause inflation. The Federal Reserve might respond by raising interest rates, hitting share prices.
Benstead also highlights Trump’s record on tax and tariffs: ‘His tax-cutting policies were welcomed by stock markets in his first term, but that’s not to say he would be good news for markets again.
‘He has threatened tariffs on all imports, and a higher rate on Chinese imports, which could create more inflation in the US and hurt growth.’
Last year, the US International Trade Commission found that tariffs imposed by Trump on steel and aluminium imports drove up costs for industries that rely on them. Higher costs are typically passed onto consumers.
With Trump promising more tariffs, costs for these industries could rise further, raising prices for consumers and pushing up inflation.
- Find out more: how to find a financial adviser
What if Harris wins?
Harris, meanwhile, has put more of a focus on corporation tax, healthcare and the cost of food and goods.
‘Harris’s policies include increasing corporation tax – from 21% to 28% – which would eat into company profits and therefore shareholder returns,’ says Benstead.
‘She has also said she would ban price gouging on food and groceries, which may hurt the sector alongside consumer staples firms.
‘A final policy area is healthcare, where she wants to lower costs, which may have a negative impact on healthcare shares.’
A Harris-led administration would likely seek to continue Biden’s tough antitrust enforcement on the mighty US tech industry, while Trump would probably be less vigorous.
Experts have suggested Democrats might lean into renewables, while Republicans would push for fossil fuels. Many energy firms are involved in both – and indeed energy has been the best-performing US equity sector since Biden’s inauguration.
- Find out more: how to buy shares
Should you sell your US investments?
With short-term market falls possible in the aftermath of the election, ask yourself how long you intend to remain invested.
If the answer is not very long, consider reducing your US investments before the election.
You may be concerned they are ‘overexposed’ to the US market, but Laith Khalaf, head of investment analysis at AJ Bell, estimates that American investments only make up around 40% of the average British investor’s portfolio.
Just bear in mind that many ‘Global’-branded funds are heavily invested in the US – your investment platform may be able to show your overall regional allocation.
If you intend to remain invested, but are unsure how to adjust your portfolio, you could try a US-focused fund or trust.
Three of the top 10 best performing funds in the first quarter of this year were US equity funds, according to Morningstar.
These were GQG Partners US Equity (23.59% quarterly return), VT Tyndall North American (19.3%) and Lord Abbett Innovation Growth (18.26%).
‘Investing is a long-term game,’ says Benstead, ‘so regardless of the twists and turns over the short-term in the market – from an investment perspective – staying invested, and diversified, remains key.’
- Find out more: best investment platforms
