Keep your eyes on growth but don't make any major portfolio changes at this time, says BMO's Belski
A top investment strategist’s message to investors in the aftermath of election is simple – turn off your TV and ignore the rhetoric.
Brian Belski, of BMO Capital Markets, said people have to trust the process and that delays in knowing the result are not unheard of in American history. In 1960 it took until the next day to announce that John F. Kennedy won while, of course, in 2000 it took 37 days because of the "hanging chads" in Florida. For the historians, the controversial 1876 election took until 1877 for Republican Rutherford Hayes to win over Democrat Samuel Tilden on condition he would end Reconstruction. Tilden actually claimed more electoral votes.
Back to present day, though, and Belski doesn’t expect this election will take as long as 2000 to sort out, thankfully. For investors, he believes they should keep their focus on growth.
He explained: “When growth is scarce, growth outperforms, and you want to stick where the scarcity proposal remains the strongest, and we think that's growth, whether it’s secular (tech), structural (retailers, thematics or some areas of communication services), cyclical (big cap financials) or other areas of the more classic cyclicals.
“Where the capacity comes in, you want to sell it. And where that comes in, quite frankly, with respect to investments right now, is the rhetoric. So, I would say this, turn off the news.”
At the time of publication, the most likely outcome was a Joe Biden presidency and a Republican Senate, which means a political gridlock, something markets favour because it will block a lot of either candidate’s initiatives over the next two years.
He added: “Do not make any massive sector, size or style, portfolio strategy changes at this time. We will be out with our year-ahead report, as we do every year for both the US and Canada, once a successful conclusion to this US presidential election happens. Have faith in the process and let’s hope we can get back to the business of investing.”
The aforementioned gridlock does not bode well for a fiscal stimulus package being passed any time soon. Predictions of a blue wave have proved wide of the mark and Keith Wade, Chief Economist, Schroders said this means we are looking at a divided Congress and the prevention of the latest package reaching the Covid-stricken economy.
He said: “Markets, which had begun to factor in a Democrat sweep and a significant stimulus bill, are now reining in their growth expectations. Estimates had suggested this could have been worth an extra one percentage point of growth in the US next year.”
He added: “There could be a legal challenge from either side, which could mean we have no clear picture for days as we wait for the Supreme court to opine. Such uncertainty, if prolonged, would put decisions on hold and bring parts of the economy to a standstill.”
Meanwhile, Greg Taylor, CIO at Purpose Investments, said a contested result is the worst-case scenario and how bad the situation gets will depend on how soon it takes to find out who the winner is.
He added, though, that there are some certainties: fiscal stimulus is on hold until the election results are sorted out; we may also see a hit to consumer confidence; and increased volatility is a real possibility. Investors should be looking at safer and protective assets, with Taylor believing the best options include cash, gold and hedging strategies with some options overlay.
He said: “One outcome that could be the best for all is if Biden wins the White House but the Republicans keep the Senate. This would provide the balance of power that is traditionally something markets like because it’s a more minimal change.
“Things might be messy to start if this scenario unfolds, as bills likely are held up. That’s likely bad news for stimulus plans, which may be further delayed - and would most likely lead to lower bond yields. However, it would also act as a check on sweeping change from coming in. Fears of dramatic tax hikes or a breakup of Big Tech should fade away while trade tensions should lessen, and international ties be strengthened.
“It may not be the outcome either party wants, but at the end, it may be what the markets need.”
