With election uncertainty rising, Wall Street eyes opportunities amid shifting poll dynamics and volatility
Wall Street is quickly adjusting its strategies as Vice President Kamala Harris gains ground in the US presidential race, as reported by BNN Bloomberg.
Harris has surged in the polls since President Joe Biden dropped out of the race and endorsed her on July 21. After the recent Democratic National Convention, polling from Real Clear Politics shows Harris at 48.4 percent, slightly ahead of former President Donald Trump at 46.9 percent.
Before Biden's exit, Trump led with 48.1 percent compared to Harris's 46.2 percent.
This shift is impacting the market. Goldman Sachs Group Inc.’s indexes, which track trading strategies for each party, show that the Democratic strategy began outperforming the Republican one around the time Biden stepped down.
Additionally, options trading indicates that investors are paying more for protection against volatility around Election Day, despite expectations of overall lower volatility than the long-term average.
Institutional investors are also reconsidering their positions. UBS Group AG’s wealth management arm recently suggested that a Harris win with a split Congress is the most likely outcome.
Meanwhile, Goldman Sachs adjusted its election-related trading strategies to reflect lower odds of a Republican sweep, even though it still sees that scenario as the most probable.
Earlier this month, JPMorgan Chase & Co. called the presidential race a toss-up, having previously considered a Trump victory more likely.
Stocks associated with Trump’s policies, often referred to as ‘Trump trades,’ are seeing a decline.
For instance, private-prison operators like GEO Group Inc. and CoreCivic Inc. experienced significant stock price fluctuations following the Biden-Trump debate in June, with prices rising sharply in July before falling back to their previous levels.
Gunmakers Sturm Ruger & Co. and Smith & Wesson Brands Inc. followed a similar pattern. Trump Media & Technology Group Corp., Trump’s social-media company, saw its shares climb above $40 in mid-July but is now trading around $22.
Government bonds and global currencies are more difficult to analyze in this context, as they react to broader economic and geopolitical developments. Concerns over trade wars and higher tariffs, risks closely tied to a Trump win, have largely dissipated.
The US dollar, which peaked in June, has since declined. While Trump is viewed as a strong dollar candidate, the drop is also attributed to the Federal Reserve cutting interest rates.
Harris’s potential victory is expected to benefit industries like renewable energy, electric vehicles, and utilities. A Harris administration is also less likely to escalate trade tensions with China, which could lead to relief rallies in industries dependent on the Asian economy.
In general, a Harris win would suggest minimal policy disruption, which investors typically favour.
The election's impact is also being felt in advertising. Piper Sandler analyst Matt Farrell noted that political advertising spending is expected to exceed initial projections due to the unexpectedly competitive race.
Online advertising company Trade Desk Inc. is seen as a major beneficiary of this trend.
Despite Harris's recent surge in the polls, the race remains too close to call, and market experts advise caution.
Eric Diton, president and managing director of the Wealth Alliance, noted, "We are not trading the election, it is just too tight. When Biden was running, the Trump trade made a lot of sense because Biden really dropped in the polls. But now Harris is gaining momentum, and it’s again anyone’s guess."
The unpredictable nature of voter sentiment as the election approaches suggests that investors may need to remain flexible and avoid locking into a position prematurely. The election outcome remains uncertain, with both sides preparing for a tight finish.
