Political fortunes can shift appreciably over the course of a long presidential campaign, with American voters subjected to incessant media coverage and repetitive advertising. (UBS)

The development brings Trump one step closer to a criminal trial, while he remains in the lead in the Republican primaries. Trump vowed to appeal the ruling.


It likely will take time before the results of Trump’s legal challenges are clear, but as the former president mounts another campaign for the White House later this year, we recommend investors take note of the following as they navigate the headlines in the coming months.


Nine months is a long time in politics. Political fortunes can shift appreciably over the course of a long presidential campaign, with American voters subjected to incessant media coverage and repetitive advertising. National polls should be treated with skepticism, with closely contested “swing states” holding relatively more importance in the general election. It is also worth noting that public opinion can change substantially in the runup to Election Day, so national polls in February are unlikely to offer much clarity about the outcome.


Contentious election campaigns do not trigger an equity market correction. Investors are often anxious to know whether a specific election result will have a significant impact on portfolio performance. But while fiscal and regulatory policies can affect the performance of specific asset classes in the short run, longer-term portfolio management decisions should be treated as an apolitical exercise. If one excludes the 2008 presidential election, which occurred during an unprecedented global financial crisis, the performance of the S&P 500 in election years was roughly similar regardless of which party was elected to the presidency.


International trade and the federal deficit are likely to come under the spotlight. Global trade relationships will be front and center in the next administration, in our view. A second Biden administration will likely pursue the “high fence, small yard” policy, whereby the most advanced technology is highly restricted, but trade in less sensitive consumer items is less affected. A Trump administration is more likely to implement trade restrictions and impose broad tariffs on national security grounds to leverage concessions from global trading partners.


Domestically, managing the growing federal deficit is now a key challenge for many members of Congress. Republicans are likely to propose reductions to domestic policy programs, while Democrats will likely focus on raising new revenue to support existing programs. In the event of a divided government, however, any such moves on spending or taxation would likely be relatively modest, with the potential to slow the rate of growth but not shrink the size of the deficit.


So, as investors look ahead to November, we continue to stress the importance of a diversified and balanced portfolio. Against the current backdrop of lower inflation and likely slower but positive growth, we recommend investors seek quality in both bonds and equities. We also see opportunities in small-cap stocks, which would likely outperform in a Goldilocks scenario. For investors looking to hedge market risks, we see value in defensive structured strategies, oil, gold, and hedge funds.


Main contributors – Solita Marcelli, Mark Haefele, Daisy Tseng, Thomas McLoughlin, Vincent Heaney, Jennifer Stahmer


Read the original report : Navigating the US election year amid a potential rematch, 7 February 2024.


For more, see ElectionWatch 2024: Implications of a potential rematch