US Politics and Policies How to invest ahead of the US election

We think investors should manage their exposures to the US consumer discretionary and renewables sectors, both of which could suffer if a “red sweep” scenario materializes. The consumer discretionary sector, which already faces challenges, could see further pressure if trade tariffs are imposed after the election. Meanwhile, the renewables sector has performed strongly recently amid optimism about AI demand. But there is a risk that a “red sweep” leads to lower government support.

Instead, we recommend investors to tilt toward the financial sector. We think the financial sector is currently not pricing the potential for lower regulation that could materialize under a “red sweep” scenario.

The 2016 election, when Donald Trump was elected, led to divergent outcomes, and while the assets affected may differ this time around, we expect volatility. We have identified a series of stocks across sectors that would likely be affected by a Trump or a Biden victory. To help manage the potential volatility associated with the outcome, strategies that investors can employ for single stocks or cyclical sectors like energy, industrials, and financials include capital preservation strategies or yield-generating strategies.

In addition, vanilla put options, more exotic lookback options, or dispersion strategies can be considered on the stocks we have identified. Options are not suitable for all investors, and trading in these instruments is considered risky and may be appropriate only for sophisticated investors. For more information, please see the Options disclosure in the disclaimer at the bottom of this page. Additionally, investors may not be able to implement on these option strategies depending on their location.

In terms of currencies, we also think investors should consider hedging their Chinese yuan exposure, going long the USDHKD with 1-year and 2-year forwards (as the peg remains intact), and managing their Mexican peso exposure.

The 2016 presidential election led to divergent outcomes

One-month performance of select assets after the 2016 US presidential election, in %

We also think gold represents an interesting opportunity and have lifted our stance on the asset to most preferred. Concerns about geopolitical polarization, inflation, the US fiscal deficit, and Fed independence could all help gold prices. In our base case, we forecast gold prices rising to USD 2,600/oz by the end of the year and USD 2,700/oz by mid-2025, driven by political uncertainty and by continued central bank buying.

On average, the gold allocation of developing countries’ reserves is about half the level seen in developed market central banks, according to data collected by the World Gold Council from the International Monetary Fund’s International Financial Statistics division. Moreover, the World Gold Council’s latest Central Bank Gold Reserves survey found that 29% of central banks intend to increase their gold reserves over the next 12 months, the highest level since the survey began in 2018. As an example, the Polish central bank has communicated that it plans to increase its gold allocation from 13% currently to 20% by the end of 2025.