With the US election fast approaching, short-term volatility in the markets is likely, says the Association of Investment Companies, but investment managers remain optimistic about opportunities for investors.
The S&P 500’s rally, which has seen it rise 21% year to date, has until recently been dominated by a small number of stocks in the Magnificent Seven. However, it is now broadening out to the small and mid-cap sectors, with the equal weight S&P 500 index hitting a record high.
At a roundtable hosted by the Association of Investment Companies, Jeremiah Buckley, manager of The North American Income Trust, said: “The election results could cause some volatility over the short term for markets but we don’t believe the result will have a meaningful impact on the medium to long-term outlook for US equities.
“When we look at history, there hasn’t been a material difference in the performance of the US equity market when either party has the presidency. There are numerous examples of strong performance when each party has held the top office.”
Buckley said the best outcome would be a split government where neither party has control of all three branches, making it more difficult to push through new legislation and forcing parties to compromise. This would, he argues, create less uncertainty around policy and limit any dramatic shifts.
Dean Orrico, lead portfolio manager of Middlefield Canadian Income Trust, agreed that there is likely to be short-term volatility surrounding the election, but its long-term impact will be tempered by the “checks and balances inherent in the US system.”
Orrico said a Trump victory could benefit sectors like energy, financials, traditional infrastructure and energy infrastructure, driven by his pro-business policies, tax cuts, deregulation and increased spending on domestic energy projects. In contrast, a Harris win could signal more focus on clean energy, technology and healthcare.
“Clean energy infrastructure, such as wind and solar projects, would likely receive a boost under her administration, offering long-term growth potential for investors focused on the energy transition,” he added.
Felise Agranoff, co-manager of JPMorgan American Investment Trust, said: “Whilst the US presidential election may spark some market jitters, due to uncertainty regarding the winner’s domestic political priorities and their stance on various geopolitical situations, the economy appears to be on a sound footing and should be supported as we enter a cycle of interest rate cuts.
“As a result, our approach to stock picking remains unchanged, irrespective of the pending election or its outcome. We will continue to focus on high-conviction stocks and invest in quality businesses with good management teams and strong balance sheets.”
