One of the most hyped market-moving events of the year has arrived.
Americans went to the polls on Tuesday to vote in the presidential election between Donald Trump and Kamala Harris. The outcome could have an impact on financial markets for the rest of the year and beyond.
For the broader market, Wall Street strategists say the biggest risk would be a contentious election, with the outcome not clear for weeks.
“A close, contentious election is the top tail risk we see for U.S. stocks in the coming days and months, although we also suspect that a Democratic move could catch U.S. stock investors off guard as well,” RBC Capital Markets Lori Calvasina wrote in a note. on Tuesday mornings with customers.
As for Calvasina, market strategists have discussed the possible termination of a so-called Trump trade if the former president does not win on Tuesday evening. Over the past month, as betting market odds have shifted in Trump’s favor, certain industries have come to believe that the former president would improve those companies’ prospects if elected. For example: financial services and cryptocurrencies.
When a new poll showed Kamala Harris leading Trump in Iowa on Friday, some of those trades began to reverse. Bitcoin had hit a recent high of $71,000 per coin before briefly falling below 67,000 after the poll was released. Similarly, the financial sector (XLF) was the second-worst performing sector on Monday, having topped the 11 sectors in October, possibly on the belief that Trump’s policies would be more beneficial to banks.
Conversely, strategists have pointed to other trades that underperformed last month and could outperform if Harris wins. In a letter to clients on Sunday evening, Morgan Stanley Chief Investment Officer Mike Wilson wrote that consumer goods companies, which could hurt Trump’s tariff policies, have priced in the potential negative impact leading up to the election.
“We see tariff-exposed consumer stocks and renewables to outperform in the near term,” Wilson wrote of a Harris-win scenario in which Congress ends up in a red-blue split. “The financial, industrial and commodity-sensitive sectors could initially underperform.”
Wilson added that a split Congress could limit the duration of any of the steps.
“In our view, market leadership in the divided congressional outcomes will likely come down to the business cycle, the Fed’s response function, and sector-specific post-election fundamentals,” Wilson wrote.
There has been plenty of debate about what has driven the stock markets over the past month. Investors have digested positive third-quarter earnings results, the start of the Federal Reserve’s easing cycle and a series of releases showing that the US economy is still growing strongly.
