GS--The US Election—Debating the Asset Market Impacts (Wilson/Chang)
应用介绍
n This year’s US presidential election is still almost six months away. But the first
debate, now scheduled to take place in less than a month (three months earlier
than usual), may increase focus on the election and provide fresh clues as to
how the market is viewing its impact on asset markets. Ahead of this, and the
summer convention season, we update our views around the potential asset
market impacts of the main election outcomes.
n We focus on the likely impacts from shifts in fiscal, tax, and trade policy. Unified
government control is likely to generate the most positive fiscal impulse, while
divided government is likely to lead to more fiscal restraint—but in all scenarios,
the likely fiscal effects in each scenario are much smaller than in 2020, and so
the market’s potential reaction to proposed tariffs may be the biggest swing
factor.
n At this stage, our baseline scenarios predict 1) a modest rally in equities, higher
yields, and USD strength in a Republican sweep, 2) modest equity downside,
higher yields, and USD weakness in a Democratic sweep, 3) modest equity
downside, slightly higher yields, and USD strength in a Trump with divided
government outcome, and 4) equities flattish, lower yields, and USD weakness
in a Biden with divided government outcome.
n If fiscal proposals wind up being larger, or the market reacts more intensely to
tariff proposals then these outcomes could be quite different. Other potential
policy shifts that we do not explicitly consider here (geopolitical tail risks, Fed
risks) may also broaden the asset impacts. Given the uncertainty around these
reactions, a Republican sweep may not reliably follow the asset footprint seen in
2016.
n We still see a stronger USD as the most reliable impact of a potential Republican
victory because it is the most consistent response to tariff risks. Higher yields
are more likely in either “sweep” outcome than in divided government
outcomes. Our baseline estimates do not make a strong case for hedging equity
exposures, but there are scenarios that could generate more significant equity
pressure. Because FX and rates impacts vary across different potential risk
scenarios positioning for deep equity downside directly may still offer the most
efficient protection for long risk portfolios.
n The challenge for positioning for or hedging against election outcomes is that the
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