Market attention is shifting from coronavirus to elections as November gets closer and campaigning heats up. News coverage is already reflecting concerns that an unclear result on Election Day could lead to weeks of contention and uncertainty, and we all know how little Mr Market cares for that. Many investors, consequently, are putting off decisions until after the election is over and the result is clear.
The differences between the candidates’ policy proposals are significant enough that the election will indeed likely be consequential for investors, both personally, as a result of potential tax changes, and indirectly, in terms of the impact on the contents of their investment portfolios.
In the event of a Biden victory, and particularly in the event of a Democratic sweep of Congress, changes are likely to come that will favor redistribution and higher spending, and will benefit some industries (such as renewable energy) and hurt others (such as fossil fuels and, potentially, healthcare and real estate).
With all that said, investors should not lose sight of the big picture. An economic recovery from the coronacession is underway, and is likely to be more robust than generally anticipated. Many of the investment themes carried to prominence by the events of 2020, particularly software, digital entertainment, and business digitization, will endure even as the pandemic continues to wane. Some beaten-down sectors and industries will benefit from the upturn, but many will continue to languish, such as parts of the hospitality, travel, and leisure industry. Most importantly, the world’s central banks will continue to ensure that the financial system is flush with free liquidity, and that liquidity will be seeking a home in financial assets.
The risk of election volatility is elevated, and therefore in the context of this abundant liquidity, investors should be prepared to “buy the dip” when it occurs — working to choose themes that will be successful in the political environment that emerges after November. At this writing, gold is at $1860; many technicians believe gold will bottom between $1800 and $1850. Given the ongoing monetary interventions of central banks and deficit spending by fiscal authorities, the suggestion to “buy the dip” also applies to gold.
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