Elections

Results from Tuesday’s elections suggest that the Democrats are doing better than what their 2024 polling are showing. While the results are marginally positive for equities, investors should not overrate this off-year election, especially considering the slowing economy and the many foreign challenges facing the US.

More equity volatility is coming in the short run. Trump’s nomination looks to be smooth, which marginally reduces the incumbent party advantage and increases policy uncertainty.

There is a connection between the bond market meltdown and Republican Party’s meltdown. Investors should expect more short-term financial market volatility as a result of the triple whammy of high bond yields, high oil prices, and a strong dollar.

US fiscal, monetary, and foreign policies are unlikely to deliver any dovish surprises for investors in Q4, due to the impending government shutdown, persistent inflation, and instability among OPEC+ and China.

China’s reopening faltered and now it is applying moderate stimulus. OPEC 2.0’s production discipline is getting results, with oil prices climbing. The Fed will not be able to deliver dovish surprises in Q4 2023. Investors should expect stock market and commodity volatility and prefer defensive positioning.

Stocks perform worse in presidential election years than average years, especially in the first half of the year, and especially if the ruling party ends up falling from power. Investors should take risk off the table until the unemployment rate peaks.

The geopolitical backdrop remains negative despite some marginally less negative news. China’s stimulus is not yet large or fast enough to prevent a market riot. Two of our preferred equity regions, ASEAN and Europe, are struggling to outperform. Investors should stay defensive overall.