Friday, November 22, 2024

2024 election: Top portfolio plays for a Trump or Harris victory

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Buckle up.

That’s the message from Wall Street pros as investors brace for a close 2024 presidential election.

So far this year, the S&P 500 (^GSPC) has rallied 20%, making 2024 the best Election Year through October since 1936. But that outperformance could be at risk, at least in the immediate term, as the too-close-to-call race is largely expected to trigger market volatility.

Predictions market Polymarket currently shows a 59.5% chance that Donald Trump will win the election, and that’s prompted a return of the so-called Trump trade. Treasuries dropped and gold soared once again this past week as investors bet that Trump’s proposed policies surrounding tariffs and tax cuts could prove to be inflationary.

“The key for markets will be certainty in the outcome from which to understand economic impacts and evaluate implications for the trend of economic growth and evaluation of sector winners and losers,” Rob Haworth, US Bank Wealth Management senior investment strategist, told Yahoo Finance.

Given the key themes that have emerged from Trump’s and Harris’s respective campaigns, I asked a number of strategists what a Republican versus Democratic presidency means for business and Wall Street and narrowed that list down to three trade ideas under each scenario.

Financials is viewed as a top trade under a Republican presidency on the expectations for looser regulation and increased M&A activity.

According to a recent note from Fitch Ratings, a July 2021 executive order under the Biden-Harris administration encouraging greater scrutiny of mergers has impeded deal activity — guidance that is expected to change under Trump.

“While no proposed mergers have been formally denied since the directive took effect, approval times have increased markedly and, in some cases, to the point of making deals non-viable, as market conditions turned during the review period,” Christopher Wolfe, head of North American banks for Fitch Ratings, wrote in a note.

UBS Global Wealth Management ElectionWatch co-lead Kurt Reiman told me financials stand out as a “key beneficiary” in both a Red sweep scenario (meaning Republicans control the White House, Senate, and House) and a Trump presidency with a split Congress.

Reiman said a looser regulatory environment could lead to lower costs and greater ability to return capital to shareholders, as well as a higher likelihood that consolidation in the financial services industry would face less resistance.

On the flip side, Reiman and his team see Democrats controlling the White House, Senate, and House as a “worst-case scenario” for financial services due in part to the probability of greater support for the Credit Card Competition Act — a bill he views as ushering in new regulations and stricter interpretations of current rules.

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