Where to put your money as the election goes down to the wire, according to the pros

  • Crucial battleground states Pennsylvania, Michigan, Wisconsin, Georgia, North Carolina were still counting ballots as of around 6 a.m. ET, with both President Donald Trump and Democratic challenger Joe Biden retaining possible paths to victory.
  • Nevertheless, Wall Street analysts shared their thoughts on where to invest amid the uncertainty.

With a number of key swings states in the U.S. presidential race still too close to call, Wall Street analysts are bracing for a period of market volatility.

Crucial battleground states Pennsylvania, Michigan, Wisconsin, Georgia, North Carolina were still counting ballots as of around 6 a.m. ET, with both President Donald Trump and Democratic challenger Joe Biden retaining possible paths to victory.

With vote counting requiring validation of ballots, supervision of the counting efforts and certification by State commissioners, delays may be lengthy and the individual state outcomes may only be certified when court rulings are final.

"This may have numerous unforeseen consequences for markets over the coming weeks," said David Bailin, chief investment officer at Citi Private Bank. "Accordingly, volatility is likely to remain high."

Nevertheless, Wall Street analysts shared their thoughts on where to invest amid the uncertainty.

'Look through volatility'

BlackRock said it would look past volatility and stick with "high-conviction" positions amid any upcoming sell-offs in risk assets, suggesting that low trading volumes may disproportionately amplify market moves.

A Democratic "sweep" looks increasingly unlikely, with Republicans expected to hold the Senate while Democrats retain the House of Representatives. This could affect the size and scope of prospective fiscal stimulus to shore up the economy from the effects of the coronavirus pandemic, BlackRock Investment Institute suggested.

"A Biden win with a divided Congress would constrain Democrats' ability to implement key policy priorities and launch large-scale fiscal stimulus," they said in a note.

"Stimulus in a second Trump term could be a bit larger, in our view, with negotiations on a fiscal package to cushion the virus shock restarting. We expect little public investment in either case."

BlackRock sees the election outcome as having a significant impact on equities and fixed income, with long-term yields capped under a Biden presidency with a divided Congress, or a Trump reelection. Analysts said U.S. Treasury yields could fall further after a run-up in yields before the election on expectations of a Democratic sweep.

"Longer term, however, we see government bonds challenged amid a higher inflation regime. We expect tech companies, the quality factor and large caps to perform strongly under a divided government – as they have done in the past," BlackRock said.

"We believe emerging market (EM) assets would likely outperform on improved trade sentiment in case of a Biden win, especially Asia ex-Japan assets."

Diversify and stay disciplined

In a note to investors Wednesday, UBS Chief Investment Officer Mark Haefele offered investors a playbook for the coming days and weeks. He retained a positive medium-term outlook for stocks and suggested investors use volatility to build long-term positions, position for dollar weakness going into 2021 and diversify equity portfolios.

"Although mega-cap tech is performing strongly today, we expect the relative laggards of 2020 to lead the next leg higher in 2021. These include US mid-caps, EMU (European Economic and Monetary Union) small- and midcaps, the U.K., and emerging market value stocks," Haefele said.

He also suggested buying into themes that will be accelerated by Covid-19, such as 5G, automation and robotics, along with protecting against the downsides amid the potential for both sides to launch legal challenges in the coming weeks.

"Aside from ensuring portfolios are well diversified across asset classes and geographies, now is also a time to consider stocks that are relatively insulated from campaign issues," Haefele said.

"These include companies in communication services; companies with a diverse revenue stream or diversified content; consumer staples; and portions of the IT sector that have remained out of the regulatory spotlight."

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