The US dollar dropped today (November 4) as some polls shifted to Kamala Harris and away from Donald Trump in the US presidential election race.
The dollar fell 0.6 per cent against a basket of major currencies after rising throughout October on the back of many polls predicting a Trump win.
The latest opinion polls show Harris at 48.1 per cent compared with 47.7 per cent to Trump.
With polls almost equal Erik Knutzen and Jeff Blazek, co-CIOs of multi-asset strategies at Neuberger Berman, said volatility in the markets is likely to last until the outcome of the election.
The pair wrote: “We have been anticipating a pick-up in volatility as the election nears, and this week is likely to see a peak in that volatility, lasting until we have an unambiguous outcome.
“This is a key reason why we have been counselling against taking substantial active positions—particularly active positions tilted to one or other election result.
"The exception would be in assets that can help to diversify portfolios and dampen their volatility, such as gold and other commodities.”
While polls open tomorrow (November 5), it is thought this year’s close contest could mean a longer wait for the final result.
Rupert Thompson, chief economist at IBOSS, said if Harris wins it would be unlikely for the Democrats to control Congress as well as the presidency which would limit the ability to enact plans to cut taxes and increase spending.
Though, Thompson said the market reaction to a Trump win would be harder to predict.
He added: “Again, it will partly depend on whether he gains a clean sweep which is more likely for Trump than Harris. If he doesn’t, this would constrain his room to cut taxes but not alter his ability to increase tariffs.
“A Trump victory is likely to lead to a rather stronger dollar and higher government bond yields because his plans to raise tariffs sharply would boost inflation and reduce the willingness of the Fed to reduce rates.”
Fresh research from Bowmore Financial Planning ahead of the election showed Democrat presidencies have seen an average 55 per cent growth in the S&P 500 over their four year terms, compared with the 21 per cent growth seen over Republican presidencies.
However, Charles Incledon, client director at Bowmore, said the S&P has tended to perform well in the long term regardless of the country’s political leadership.
He added: “The global economy is much more to blame for occasional periods of poor performance of the S&P. For example, George W Bush’s presidencies were sandwiched between the bursting of the dot com bubble in 2000 and the global financial crisis of 2008 – disasters that were almost entirely outside of the government’s control.”
“There is room for US equities in most investors’ portfolios. The US stock market has delivered strong growth for decades on end. While there will always be blips, people investing in the US for the long term have been rewarded.”
