Investors’ Outlook: At a crossroads

At a crossroads

Anticipation is high as the US presidential election nears its culmination. With Donald Trump and Kamala Harris locked in a tight race, the balance of power in Congress is also at stake. Will there be a Republican sweep in the Senate, and will Democrats retake the House of Representatives? The outcome rests heavily on swing states¹, where the economy has emerged as a decisive issue for voters².

Amid declining inflation and signs of a weakening labor market, the US Federal Reserve (Fed) had started to cut interest rates. A stronger-than-expected jobs report in September sparked skepticism over whether the Fed will keep its dovish stance. However, October hiring was the weakest since 2020, with previous months’ job gains revised downward. The Fed will start its next policy meeting on November 6, capping an eventful week in the wake of the election.

Regardless of whether the country chooses to return to Trump’s familiar terrain or charts a new course under Harris, a significant shift in US-China relations appears unlikely. Both candidates are poised to continue a combative stance toward China, and the broader trend of economic containment are likely to persist.

A key issue we’re watching is the growing federal deficit, which poses a challenge no matter who takes office. While Harris’s approach appears to be less inflationary – favoring more restrained fiscal policies compared to Trump³ – the trajectory remains toward higher federal debt under both. This poses a risk to the US dollar and highlights the need for diversified investment strategies.

The most immediate market-relevant event may be the sunsetting of Trump-era tax cuts. If phased out, this could impact companies’ valuation multiples and cause some market volatility.

In this Investors’ Outlook, we analyze gold’s recent rally and dissect what’s going on in bond, currency, and stock markets. This mini-format edition aims to provide a concise overview, cutting through the pre-election noise. For a deeper analysis of the potential paths ahead, we invite you to our upcoming webinar on Thursday, November 7. I’ll be joining our Chief Economist, Reto Cueni, and Stephan Bierling, professor of political science at the University of Regensburg, for an in-depth discussion of the election results.

At this crossroads, it’s not just the direction we choose that matters but how we steer the turns. We’re happy to take the wheel for you.

1. Arizona, Georgia, Michigan, Nevada, North Carolina, Pennsylvania, Wisconsin.
2. Source: CBS article, published April 29, 2024. https://www.cbsnews.com/news/economy-top-issue-voters-presidential-election-2024/
3. Source: Tax Foundation article, published October 24, 2024. https://taxfoundation.org/blog/largest-tax-increase-harris-trump/