Trade
Republicans are favored but the election is still competitive. Equities, corporate credit, and cyclical sectors will fall until policy uncertainty is reduced.
As Trump’s victory odds rise, the underperformance of European equities deepens. How negative would a global trade war be for European assets?
Investors should overweight US assets and de-risk their portfolios in anticipation of a major increase in policy uncertainty and geopolitical risk surrounding the US election and its global ramifications.
The cyclical economy is slowing today. Republicans are now more likely to win a full sweep, crack down on immigration and trade, and at least modestly stimulate the economy. Uncertainty and volatility will rise.
The conventional wisdom is wrong: Trump is not going to substantially cut taxes once in office; he is going to raise taxes by jacking up tariffs. To the extent that this dampens economic activity, it is bad news for stocks but good news for bonds.
US assets and the US dollar should remain resilient relative to global peers over the next 12 months as policy uncertainty, election risk, and geopolitical risk reach a climax. After that, investors should reassess their regional allocation.
