(Bloomberg) — Investors should be prepared for U.S. market volatility and lower long-term stock returns regardless of whether Donald Trump or Kamala Harris wins the Nov. 5 presidential election, money managers said at a Bloomberg event in Los Angeles.
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Todd Morgan, chairman of Bel Air Investment Advisors, which manages $11.5 billion for high-net-worth investors, said today’s investment climate resembles the Roaring Twenties, with a strong economy and societal changes in the wake of a pandemic.
If Harris is elected and Democrats take control of both the White House and Congress, they will likely raise taxes, which could lead to a sell-off before the end of the year, Morgan said. A Trump victory and a Republican win could stoke “animal spirits,” fueling a broad market rally, but Morgan warned such a scenario could widen the deficit and drive up inflation.
“As long as we have a divided Congress between Democrats and Republicans, we’ll be fine,” said Morgan, who co-hosted the panel ‘Where to Put Your Money After the Election’ on Wednesday with Bloomberg’s US economist. Stuart Paulus.
A survey of swing-state voters released Wednesday by Bloomberg News/Morning Consult found the race was too close to call. Opinion polls once again rank the economy as one of voters’ top concerns this election cycle, with the candidates’ potential impact on investment a key consideration.
The S&P 500 Index is up about 50% since President Joe Biden was inaugurated in January 2021, similar to gains during an equivalent period of Trump’s presidential term. Stocks are unlikely to sustain the performance as investors turn to other assets, including bonds, for better returns, Goldman Sachs strategists predicted this week.
Stocks and other assets have soared to unprecedented valuations, making high returns less likely in the coming years regardless of who wins the election, said Katie Koch, CEO of TCW Group Inc.
Koch, whose L.A.-based firm oversees about $200 billion, quoted Warren Buffett’s former partner, the late Charlie Munger, in advocating that investors keep some powder dry for the right opportunities.
“It’s probably wise to have some liquidity to take advantage of a disruption,” Koch said. “Something we think about a lot in our portfolios is having dry powder and being really careful about everything being priced for perfection.”
While the election could lead to market volatility, Jerome Schneider, director of Pacific Investment Management Co., emphasized that inflation and budget deficits are more pressing reasons for investors to diversify their investments than the outcome. “The bottom line is that this diversification will inevitably help create portfolio opportunities,” Schneider said.
During the panel, Jamie Montgomery, managing partner of LA-based venture capital firm March Capital, with about $2 billion under management, called for immigration reform to support economic growth and innovation. At least 80% of U.S. unicorns — startups with a valuation of at least $1 billion — were founded by immigrants or their children, Montgomery said.
“I think we need smart immigration,” he said.
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