The US election is two months away. Considering that the election is on 3 November, you’ll likely be wondering how it came around this quickly! As with most large risk events, it seems far away but really comes into view at some pace. With that in mind, stock market investors are already starting to prepare themselves for the different outcomes from the election and how they could impact their portfolios. This is true not just in the US, but even here in the UK. Given the global nature (and US exposure) that a lot of the FTSE 100 firms exhibit, it’s relevant for us to consider as well.
US election possibilities
Firstly let’s just go over the outcomes. It’s a two-horse race, between candidates Donald Trump (Republican) and Joe Biden (Democrat). There’s some added scenarios depending on whether the party wins both the House and the Senate, but in the short term the stock market will focus primarily on the name in the White House.
At a simplistic level, the stock market likes maintaining the status quo and doesn’t like uncertainty. From this angle, a Trump victory could likely see the markets rally. A Biden victory (with an unknown future) could cause the market to fall. Biden has also pledged to raise taxes and be tougher on large corporations. This could be another factor which sees the market react negatively if he wins. Trump (and by extension the Republicans) have historically been business-friendly.
How I’m preparing my FTSE 100 portfolio
This isn’t just a US risk event. A lot of the companies that are listed on the FTSE 100 have exposure to the US. For example, take Carnival Cruises. The cruise liner operator is a global firm, being listed in the US as well as here in the UK. In its 2019 annual report, the firm noted 50% of guests were sourced from outside the US. This means that half of the guests that book with Carnival are based inside the US. So any impact that the election may have on ordinary consumers will have a sizeable impact on Carnival.
I don’t currently own shares in Carnival, but am looking through the stocks I do own and finding out what exposure it has to the US. It’s impossible to make the perfect call, so use whatever your gut tells you on the outcome of the election. Personally, I think Trump could win, so am looking to increase my exposure to the US. Another indirect way I’m doing this is by thinking about the stocks that could benefit from a US-UK trade deal, which Trump is keen on. This should provide a boost for UK car manufacturers such as Aston Martin Lagonda, which sits within the FTSE 250.
I can also get exposure to the US directly by investing in US stocks through my Stocks and Shares ISA. I recently wrote about the growth of Tesla, which you can read here. As a UK investor, you can buy into stocks not just listed here in the UK.
Overall, start preparing now for the US election, and get your game plan ready. Check for exposure within your portfolio, and adjust this according to the result you think will happen come November!
