How the U.S. election factors into the market outlook

By the BlackRock Investment Institute

Key Points

  • Growth is expected to edge higher this year.
  • Activities leading up to the U.S. presidential election may create an uncertain near-term investment outlook.
  • It’s important to keep a balanced, long-term perspective on your investments by working with your financial advisor.

This year, growth should edge higher as easier financial conditions — interest rates, asset price levels, consumer credit levels — start to filter through the economy. This limits recession potential and provides a favorable backdrop for risk assets such as stocks and corporate credit. That said, inflation and political risks look underappreciated.

Divergent points of view on U.S. economic policies could affect global trade, corporate taxes, the regulatory environment and fiscal stimulus for infrastructure. In addition, large-cap tech companies may face a regulatory backlash, as issues around market dominance, data privacy, election meddling and cybersecurity rise to the fore. This challenges large U.S. stocks, which have led markets higher in recent years.

The uncertainty of the U.S. presidential election could weigh on market sentiment, depressing business investment and preventing a repeat of last year’s strong market outperformance. Given this, investors may want to consider shifting U.S. equity allocations from overweight to neutral.

In contrast, a rebound in global trade and business spending could pave the way, tactically, for stronger performance of emerging market, Japanese and Canadian equities. Cyclical assets have severely underperformed in recent years, both on a regional basis (U.S. stock market returns have outrun those of more cyclical peers) and in equity style factors (value has had a near record stretch of lagging other factors). 2020 may be different.

Zoom out and think long-term

The U.S. election is a small but important part of the global market landscape. Three powerful trends are testing limits and could become market drivers.

  • Rising wealth inequality and a surge in populism around the world could result in meaningful changes in taxes and regulations in either direction.
  • Trade frictions and deglobalization are weighing on economic growth and boosting inflation.
  • Interest rates are nearing lows and hurting the effectiveness of monetary policy.

Continue to work with your Ameriprise financial advisor to assess what’s right for your investment goals. The election race may create an uncertain near-term outlook, so it will be particularly important to navigate volatility and have a plan to make your portfolio more resilient to short-term ups and downs in the market.

Investors who think beyond the United States and keep a long-term perspective may be likely to produce better outcomes for their portfolios.