Financial district's advancement comes to a halt.
With the November 5th election approaching, it's a toss-up between Kamala Harris and Donald Trump for the U.S. presidency. Despite the uncertainty, having the U.S. in your investment portfolio is non-negotiable for stock market investors.
After Joe Biden stepped out of the presidential race, the race between Harris and Trump has tightened up. Predicting the outcome is like trying to see the future with a crystal ball, as the Democrats and Republicans could potentially win majorities of voters in crucial swing states.
On the side of the U.S. congressional elections, the signs point to a potential Democratic majority in the House of Representatives, while the Republicans might take over the Senate. However, nothing is set in stone yet. A stalemate would limit the new president's power to maneuver.
For stock market investors, the outcome of the election may impact which asset classes or sectors will gain traction. If Harris wins, it's a mystery. If Trump returns to office, his plans for deregulation and focus on small companies make the picture clearer. American small caps have been lagging behind for years, and Trump's deregulation plans might help bridge the valuation gap between small and large caps.
Oil with potential for a tumble
However, if Trump wins, oil prices could plunge. Trump's "Drill, baby, drill" campaign slogan indicates a commitment to developing American oil resources by encouraging exploration and drilling. Additionally, peace between Russia and Ukraine is on Trump's agenda, which could result in an increase in Russian oil exports and put pressure on oil prices to fall towards $45 per barrel. Currently, a barrel of WTI trades around $70.
It's worth noting that the outcome of the election might have short-term impacts on Wall Street, but long-term effects are unlikely to be significant. Since Joe Biden took office, the S&P 500 has seen a rise of more than 50 percent. During Trump's first term, the stock market recorded even more gains, making Wall Street a pretty reliable destination for investors.
Historically, interest rate cuts from the U.S. Federal Reserve have provided additional support to Wall Street. If necessary, the Fed still has room for further cuts to prop up the U.S. economy. The U.S. economy is already recovering well, as demonstrated by the positive employment data. The U.S. economy is projected to grow by 2.7 percent this year and 2.3 percent in 2023, while other major economies like Germany and Japan are still playing catch-up.
Potential for interest rate cuts in the USA
Meanwhile, the Fed's Jerome Powell has initiated a new cycle of interest rate cuts and reduced key interest rates by half a percentage point for the first time in years. However, the U.S. still has higher interest rates than other major economies, giving Jerome Powell more opportunities to make cuts if needed.
The chances of the Fed lowering interest rates by 0.25 percentage points at each of the remaining meetings this year are relatively high. This would further bolster Wall Street. However, fallings interest rates, solid economic growth, and dynamic corporate earnings in the U.S. help offset high valuations to some extent, especially among U.S. tech stocks and in the AI sector.
The 25,000 Euro Question
For instance, a 25,000-euro investment can go a long way. A balanced portfolio should contain about 45 percent equities, with approximately half that share being American stocks. European equities, while offering attractive valuations, should be approached with caution, especially when it comes to emerging markets like China. Instead, consider investing 45 percent in bond markets stably, keeping 10 percent as cash to take advantage of price fluctuations.
From now on, the German Doctors' and Pharmacists' Bank's Chief Investment Officer, Reinhard Pfingsten, will be steering the financial markets' waters. With his tenure starting in September 2023, Pfingsten boasts a storied career that includes previous roles at Bethmann Bank and Hauck & Aufhäuser Privatbankiers.
This publication is for informational purposes only and is intended for use by the recipient. It does not constitute an offer or solicitation by or on behalf of the German Doctors' and Pharmacists' Bank.
If Trump wins the election, oil prices could potentially decrease due to his commitment to developing American oil resources and peace between Russia and Ukraine. The outcome of the election might influence the sector or asset classes that gain traction in the stock market, as a Harris win would be a mystery, while Trump's focus on deregulation and small companies could make the picture clearer for American small caps. Furthermore, the U.S. Federal Reserve still has room for interest rate cuts to support the U.S. economy if necessary, with the chances of a 0.25 percentage point reduction at each remaining meeting this year being relatively high.
