Are you positioned for the election?

by: , Portfolio Strategist, New York Life Investment Management; Multi-Asset Solutions team, Multi-Asset Solutions team, New York Life Investments

The Democratic and Republican national conventions have officially wrapped up, but an uncertain election outcome persists. So far, markets have largely ignored election proceedings and changes in polling. Investors should prepare for potential election related volatility by rebalancing, broadening equity exposures, and building a cash position.

As we noted in our recent piece, Navigating the 2020 election. A Democratic sweep would bring the most policy change. Taxes, regulation, immigration, healthcare, and trade could all see changes.

We expect, then, that any increase in the likelihood of a Democratic sweep could increase the market impact.

Where do we stand now?  Earlier in the summer, national polls have suggested a commanding lead for Democrats (figure 1). But Joe Biden’s lead has narrowed – a reminder that nothing in politics is certain.  A lot can, and likely will, happen in the next two months that could change the odds.

In addition, we are wary of the polls’ predictive power. For one, a bias in polling, as seen in 2016, may be just as prevalent today – particularly in key battle ground states where the election outcome is already less clear. Second, the pandemic will likely impact voter turnout in unforeseen ways including potential voting disruptions. The ideological split over voting by mail could further lead to operational issues or a contested election beyond election day. In these circumstances, we would expect volatility to rise, risk assets to sell off, and the U.S. dollar and other safe haven assets to rally.

Presidential General Election Polling

Source: New York Life Investments Multi Asset Solutions Team FiveThirtyEight Data. As of 9/3/2020. Polling represents a simple weighted average of various general election polls.

Many of the most important factors for the election and the markets are out of the candidate’s control, such as like the path of the pandemic, a vaccine, and the shape of the economic recovery.

Still we suspect that most investors ill-positioned for the impending uncertainty. Equity markets have moved notably higher in recent months, despite a recent setback, which likely contributed to significant portfolio drift.  Investors should consider portfolio rebalancing to correct for that. Investors could also consider building a cash position to take advantage of market opportunities, broadening sector and asset class exposure moving beyond Large Cap US technology stocks, and adjusting expectations for future market returns.

This material represents an assessment of the market environment as at a specific date; is subject to change; and is not intended to be a forecast of future events or a guarantee of future results. This information should not be relied upon by the reader as research or investment advice regarding any funds or any particular issuer/security. The strategies discussed are strictly for illustrative and educational purposes and are not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. There is no guarantee that any strategies discussed will be effective.

Any forward-looking statements are based on a number of assumptions concerning future events and although we believe the sources used are reliable, the information contained in these materials has not been independently verified and its accuracy is not guaranteed. In addition, there is no guarantee that market expectations will be achieved.

This material contains general information only and does not take into account an individual’s financial circumstances. This information should not be relied upon as a primary basis for an investment decision. Rather, an assessment should be made as to whether the information is appropriate in individual circumstances and consideration should be given to talking to a financial advisor before making an investment decision.

“New York Life Investments” is both a service mark, and the common trade name, of certain investment advisors affiliated with New York Life Insurance Company. Securities distributed by NYLIFE Distributors LLC, 30 Hudson Street, Jersey City, NJ 07302, a wholly owned subsidiary of New York Life Insurance Company.

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Robert Serenbetz

Portfolio Strategist, New York Life Investment Management

Robert Serenbetz is the Portfolio Strategist with New York Life Investment Management’s Multi Asset Solutions (MAS) team. He contributes to investment thought leadership and communication efforts across New York Life Investment Management

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Multi-Asset Solutions team

Multi-Asset Solutions team, New York Life Investments

Multi-Asset Solutions (MAS) is New York Life investments’ specialist in multi-asset investing.The team offers multi asset strategies, market intelligence, and customized solutions to its strategic partners. Managed assets include MainStay funds, strategic partnerships and customized solutions with third parties. Investment services include market insights, risk analysis, and financial education. Strategic partnerships are designed to meet bespoke investment objectives, such as income generation or inflation protection, through holistic solutions.

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