Citi head of US equity trading strategy Stuart Kaiser joins Catalysts to break down how the presidential election could impact both US equities and US-China policy as the latter seeks to recover its struggling economy.
Kaiser expects the election will be 50-50 for markets, stressing the importance of voter turnout. While both sides are deeply divided, he argues, “Who’s better or worse, it’s a little hard to know, to be completely honest with you. The economic policy seems to be converging rather than diverging.”
He notes that both platforms will be negative for equities, calling the election a “big risk event.” He explains, “I think it’s very hard to trade directionally because we think it’s basically a toss up, and you’re just going to have to kind of grit your teeth a little bit. I do think if you’re expecting what we saw back in 2016, that’s probably less likely. And if you’re expecting what we saw in 2020, it’s probably less likely. This is its own kind of unique event.”
In addition to economic policies, Kaiser notes that both Vice President Kamala Harris and former President Donald Trump have similar positions on China. “The agreement there is this has become a bit of an adversarial relationship. So, if you’re Chinese policymakers, it’s hard to see either of the two candidates being necessarily positive for that.”
However, it’s not all bad news for China. He explains, “The positive side is that the positioning isn’t there. Institutional investors in particular, have been de-risking China for an extended period of time. So if this initial start to stimulus continues and they’re actually able to generate some consumer spending, then positioning needs to rebuild, and that would kind of be your bull case.”
“I think the bear case is people have depositioned for a reason. And I think it’s going to be very, very hard for Chinese policy to really flip the switch on sentiment here,” Kaiser concludes.
For more expert insight and the latest market action, click here to watch this full episode of Catalysts.
This post was written by Melanie Riehl
Video Transcript
Stuart.
Let’s look ahead to November.
The election right now, when you take a look at the polling, the race is very, very close, to say the least.
What are you seeing?
And I guess the event, then the outcome one better than the other for the markets or what is your read?
Yeah, it’s tough to call.
I mean, our view since June, when we really started looking at this closely is it’s going to be a 5050 call right through election Day.
That hasn’t changed for us.
It didn’t change in July.
It didn’t change in August when the polls moved.
I mean, this is a small number of states with very narrow, you know, kind of vote differentials and turnout is gonna matter.
So, you know, our view here is just gonna be 5050. Who’s better or worse?
It’s It’s a little hard to know, to be completely honest with you, the the economic policy seemed to be converging rather than diverging.
Um, it did seem like in July the markets were responding positively when when former President Trump’s odds were rising.
So it does seem like there is some interest in that deregulatory lower tax kind of framework that he’s proposing, but I think it it’s really tough.
Our our US equity strategists have made the point that both platforms actually look equity negative.
So it’s a it’s a big risk event.
Um, I think it’s very hard to trade directionally because we think it’s basically a toss up and you’re just gonna have to, you know, kind of grit your teeth a little bit.
Um, I do think if you’re expecting what we saw back in 2016, that’s probably less likely.
And if you’re expecting what we saw in 2020 is probably less likely.
And this is its own kind of unique event.
Um, and no, again, hold on to it.
It’s not going to be a month well, and given that kind of convergence of policies, it makes me think about the China of it all.
And the huge rally we’ve seen this week.
But come November, could we see either candidate pouring cold water on that trade?
And is that something that retail and order should be worried about?
I think definitely, I think when you think of it, China is one of the few topics or policies in the US that the Democrats, the Republicans, the average average consumer as well as the business community all agree on, and the agreement there is.
This has become a bit of an adversarial relationship.
So, you know, if you’re Chinese policymakers, it’s hard to see either of the of the, you know, 22 candidates being necessarily positive for that on the China side.
More broadly, I think it the positive side is that the positioning isn’t there.
You know, institutional investors in particular, have been deris in China for an extended period of time.
So if this initial start to stimulus continues and they’re actually able to generate some consumer spending, then positioning needs to rebuild.
And that would kind of be your B case.
I think the bear case is people have deposition for a reason, and I think there is.
It’s going to be very, very hard for a Chinese policy to really flip the which on sentiment here is gonna take quite a bit.
And I know they got their own equity markets higher over the last week.
But I’m not sure they’ve reached critical mass in terms of changing people’s mind in the US yet Stewart Kiser.
Always great to have you especially here on, said Thanks so much for joining US City’s head of US equity trading strategy.
Thanks, Stuart.
Thank you.