A decisive Biden victory is looking increasingly likely – good news for markets that have already priced it in – but investors should remember that the “fireworks and noise” surrounding the election will have little bearing on the long-term trajectory of markets.
“We know from experience that polls do not have a perfect predictive track record, but neither do market expectations. The overwhelming belief in 2016 was that a Trump victory would be negative for risk assets, yet until the pandemic Trump had presided over one of the best market performances in decades,” said Seema Shah, chief strategist at Principal Global Investors.
“In our view, reducing long-term investment allocations because of a political view means taking a stance against the ability of the US economy to grow, and believe that an active, long-term approach remains best, even for investors worried about the election.”
Ms Shah believes investors should remain focused on fundamentals and fully invested through the election, with a priority placed on diversification and active positioning for a protracted recovery backed by increased central bank liquidity.
“A widening of the gap between the two candidates is positive for markets because it means a prolonged spell of political uncertainty is less likely. At the same time, pre-election polls are by no means perfect predictors of outcome so adjusting portfolio allocations to position for the candidate most likely to win is a dangerous strategy,” Ms Shah said.
“Regardless of the outcome of the election, markets will remain buoyed by easy financial conditions, accommodative monetary policy and ample liquidity, factors which have already driven them to record highs despite the disastrous effects of the pandemic.”
