Countdown to election day

The upcoming US election holds significant macroeconomic and investment implications, with potential shifts in trade and fiscal policies being key areas of focus for markets. Both parties propose changes to trade policy, with Trump advocating for high tariffs, particularly on China, which could reverse decades of trade liberalization and impact global growth, inflation, and bond yields.

Fiscal policy remains uncertain, with each candidate proposing tax cuts and credits, but how these will be funded is unclear, especially given the growing US budget deficit. The success of either candidate’s agenda will depend on Congressional control, with a divided government likely limiting extreme policy changes.

Markets are currently more focused on Federal Reserve policy, particularly regarding interest rate decisions based on labor market data, but the election could become a dominant market factor closer to November. A Harris victory with a divided Congress is seen as least disruptive, while a Trump win, especially with a clean sweep, could lead to a stronger dollar and higher bond yields.

Given the potential for market shocks, a more conservative portfolio approach may be prudent as the election nears.