Wall Street Hesitates on U.S. Election Bets
With less than a month until Americans vote for one of the most influential presidents in U.S. history, Wall Street is unusually quiet. The so-called "smart money" isn't betting on the upcoming election.
"Never bet on a coin toss," says George Ball, head of Sanders Morris Harris, a Houston-based investment firm. "The election is too close to make any well-considered investment strategy."
Hedge Funds Stay the Course
$Goldman Sachs(GS)$ data shows hedge funds haven't reduced their stock positions as they typically would before an election. In fact, as the $S&P 500(.SPX)$ continues to hit new highs, they've increased their exposure. Meanwhile, options traders are more focused on the Fed's rate cuts and the state of the U.S. economy, pushing the November 5 vote to the back of their minds.
Chris Murphy, co-head of derivatives strategy at Susquehanna International Group, notes, "Election concerns rank behind the Middle East war, swings in U.S. economic data, shifts in Fed rate cut expectations, and the upcoming earnings season."
Waiting for Clarity
Jonathan Capplis, CEO of hedge fund research firm PivotalPath, explains that hedge funds are taking a wait-and-see approach, holding off on major political bets until the situation becomes clearer.
So far, this strategy has paid off. PivotalPath data shows that, as of the end of September, U.S. long-short hedge funds posted returns of 11%, placing them in the top 25% for nine-month rolling returns since 2010.
"Most funds are more likely to favor continued market growth rather than cutting positions significantly due to the still-uncertain election outcome," Capplis says. "It's much easier to gauge the investment impact of a Fed rate cut than vague statements from the Trump or Harris campaigns."
Stock-Specific Strategies
Portfolio managers and strategists recommend focusing on specific stocks and industries rather than broad market indices.
UBS's trading desk suggests buying regional bank stocks, signaling the return of the so-called "Trump trade." Energy is another favored election trade—Trump's victory is seen as favorable for traditional energy producers, while Harris's win is expected to benefit the clean energy sector.
Patience Is Key
Another strategy: patience. Some professional investors advise long-term investors to ignore the election chatter and wait for results before adjusting their portfolios based on all available information. Joseph Caplan, portfolio manager at Caplan Capital Management, says:
"While certain sectors may face stronger headwinds or tailwinds depending on the administration, there's a solid argument for avoiding drastic portfolio changes."
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