One month until US elections. What we know and how to prepare.

US voters go to the polls to elect their next president in just under a month, on 5 November, with far-reaching implications for the world.

The result could mean a second Donald Trump term or America’s first woman president if Kamala Harris is elected.

How could the US election impact your investments?

As election day approaches, investors may be wondering how the outcome will impact their investments, and how is it possible to make informed decisions in amongst such uncertainty.
After all, the US is regarded as the world’s most influential economy and it is acknowledged that US capital markets provide the drum beat for the world’s investments.

It’s worth remembering that markets are forward looking because they tend to focus on long-term trends rather than being controlled by political movements and short-term politics, which have less of an impact over the long run than you might expect. Indeed, political “noise” is often temporary, and what matters more for your portfolio are long-term economic factors and market trends.

Does it matter who wins?

Incoming US Presidents throughout history – even the most newsworthy among them – have failed to be the sole contributing factor behind changes to investment markets or the economy during their time in office.

In reality therefore, investors should focus on the global economic health of the US – or that of any region they’re invested in – rather than worry about who wins the Presidential election.

So, what’s the state of the US economy?

The US routinely stands out against other major economies because it is one of the largest and most developed in the world.

There’s much data being released to help gauge the state of the US economy at the moment.

Firstly, fears of a new surge in inflation appear to have faded. Coupled with a desire to stimulate the economy and avoid a recession, this has allowed the US Federal Reserve (Fed) to start cutting interest rates. Last month the Fed actioned a bumper half point cut – the first cut in more than four years and one that was bigger than many economists had expected. The federal funds rate is now at a range of 4.75% to 5%. Further reductions are expected by many across the pond in the coming months.

While the job market has slowed, growth in payrolls is still solid and US retail sales released last month came in slightly ahead of expectations.

We don’t believe this is an economy that will see trouble ahead. Economists are starting to agree, with revisions to growth forecasts picking up again.

Luke Pearce, Multi-Asset Strategist at Barclays UK Multi-Asset Wealth, explains:
“Assessing the market implications of the upcoming US election goes beyond correctly guessing who becomes President. There are many other moving parts, for example who gains control of Congress; how likely it is that a President’s policies can be enacted; and the factors that markets are already expecting. Remember, this year the US election won’t have the markets’ undivided attention. How quickly central banks cut interest rates, whether labour markets continue to soften, and whether China’s economic situation deteriorates even further all need to be considered by investors too.”

As Luke says, there’s more than a winner to think about, but you don’t need to worry yourself with knowing all the answers. We’ve put together some helpful suggestions below that can help you be a better long term investor. Following these through the US election and beyond should help you in the long run.

Investor Manifesto:

1. Look past short-term noise

The key for investors is to worry about the right things and not to allow radical headlines about the election to disrupt an existing investment strategy.

Global markets aren’t dictated to by news headlines, and investors shouldn’t be either.

2. Avoid trying to time the market

Trying to time the market based on elections coming up is a strategy investors might be tempted to adopt. But this is usually a mistake as we believe that it is time in the market that is important over the longer term, not timing.

3. Stay diversified

Since the sell-off of the so-called “Magnificent Seven” (Amazon, Apple, Google parent Alphabet, Meta Platforms, Microsoft, Nvidia and Tesla), many investors have been reminded of the importance of diversification. So when investing in the US you may want to consider a fund that allows you to spread your money around different sectors and industries in the region.

Want to invest in the US?

At the beginning of 2024 we highlighted some funds you might consider as part of a balanced investment or pension portfolio. This included the Barclays Global Access US Equity fund, which is an example of a fund which offers broad exposure to the US stock market. You can also find other North American Tracker Funds and Active Funds included within our Funds List.