With the 2024 US presidential election approaching, analysts expect uncertainty and volatility in the markets to increase.
The race between Vice President Kamala Harris and former President Donald Trump remains highly fluid, with polls showing a narrow lead for Harris in key battleground states. While this unpredictable environment poses potential risks for markets, strategists at UBS advise against making dramatic portfolio changes based solely on election forecasts.
“Electoral shifts have tended to produce temporary volatility, making large sector shifts that reflect outcome predictions dangerous in our view,” strategists note.
Instead, UBS recommends that investors consider several strategies to hedge against the potential volatility surrounding the election.
The Swiss franc and gold are highlighted as effective hedges. The Swiss franc, known for its safe-haven status, is particularly attractive in times of political uncertainty, especially as the Swiss National Bank is unlikely to cut rates significantly further.
Gold, on the other hand, provides a hedge against concerns about the stability of the US dollar, which could be threatened by geopolitical tensions or an unsustainable US budget deficit.
Finally, structured strategies are also recommended by UBS strategists. These “can allow investors to maintain exposure to further potential equity gains, while reducing sensitivity to a temporary correction,” the bank said in a recent note.
By using structured products, investors can benefit from the positive aspects of the market, while having a buffer against possible downturns.
In addition, strategists have identified stocks that are likely to be highly sensitive to election outcomes, especially in the US consumer discretionary and renewable energy sectors. Furthermore, they emphasize that the currency is one where it may be wise to control overexposure given the potential for greater election-related volatility.
UBS also warns against overreacting to polling data. Although the election outcome is uncertain, it is not the main driver of financial market returns. Economic data and interest rate expectations from the Federal Reserve will likely have a bigger impact.
So UBS suggests that investors focus on improving the resilience of their portfolios rather than trying to predict the election outcome.
Vice President Kamala Harris has a narrow lead over former President Donald Trump, according to the latest polls. The ABC News/Ipsos poll released Sunday shows Harris leading Trump 50% to 46% among all adults and registered voters.
