Table of Contents:
Introduction to the American Presidential Election
The presidential elections in the United States represent a crucial moment not only for domestic politics, but also for the global economy. With the choice between Republican Donald Trump and Democrat Kamala Harris, investors find themselves having to analyze different scenarios that could influence financial markets. In this article, we will explore the possible reactions of the markets based on the different electoral outcomes expected
by the experts.
Electoral scenarios and market reactions
According to Karsten Junius, J. Safra Sarasin’s Chief Economist, there are five main scenarios that could emerge from the elections. The Republicans’ victory, for example, could lead to a shorter cycle of Fed rate cuts and a rise in bond yields. This scenario is considered to be the most unfavorable for bonds, with a possible widening of credit spreads in emerging markets. However, it could also benefit the profits of US companies, leading to an outperformance of the American market compared to the rest of the world
.
Impact of a Trump presidency with a divided Congress
If Trump were to win with a divided Congress, market reactions would be more restrained. Credit spreads and movements in U.S. bonds could follow a trajectory similar to that of a Republican victory, but with less pronounced effects. In this scenario, financial securities could still benefit from lower regulation and higher interest rates, while oil services could maintain levels of support similar to those of a
Republican victory.
The consequences of a democratic victory
A Kamala Harris victory, on the other hand, could result in an increase in corporate taxes, with a negative impact on S&P 500 profits. However, less political uncertainty could reduce the risk premium currently reflected in the price of gold. The sectors most exposed to increased taxes would be industrial and financial sectors, while public utilities may be less affected. In this context, global equities could benefit from a lower likelihood of large scale tariffs
.
Contested election scenario and market volatility
Finally, a contested election could generate high volatility in the markets, with U.S. government bonds likely to benefit from a flight to security. In this scenario, gold could gain value due to increased political uncertainty. Equity markets, in particular the most cyclical segments and financial securities, would be the most exposed to a risk-off environment. It is important to note that, in the event of an uncertain outcome, the possibility of the winner not being announced immediately could lead to further tensions in the markets
.
