Different from history! Wall Street now dares not bet on the US election
Wall Street is showing an unusually cautious attitude towards the upcoming US election, with investors unwilling to make major bets. Despite the election being close, many hedge funds have increased their stock exposure rather than reducing it. The market's focus has shifted to the Fed's interest rate cuts and economic conditions, with the election's impact taking a back seat. Polls show that support for Democratic candidate Harris and Republican candidate Trump is close, but due to the existence of the Electoral College, the outcome remains uncertain. Hedge funds are taking a wait-and-see approach, waiting for a clearer situation before making investments
Less than a month away, Americans will vote for one of the most influential presidents in American history. However, there is an eerie calm on Wall Street, with the so-called "smart money" unwilling to bet on what is about to happen.
"Never bet on a coin toss," said George Ball, head of Houston investment firm Sanders Morris Harris. "The election results are too close to make thoughtful investment decisions."
According to brokerage data from Goldman Sachs, hedge funds have not reduced their stock positions as they have in previous elections. Instead, they have increased their exposure to stocks as the S&P 500 continues to hit new highs. Meanwhile, options traders are more focused on the Fed's rate cuts and the US economic situation, placing the November 5th election as a lower priority.
Chris Murphy, co-head of derivatives strategy at Susquehanna International Group, said, "Concerns about the election are ranked behind events such as the Middle East war, fluctuations in US economic data, changes in Fed rate cut expectations, and the upcoming earnings season."
The latest average polling data from Real Clear Politics shows that Democrat Harris has 49.2% national support, while Republican Trump has 47.2% support. However, due to the Electoral College, national averages are not as important as state polls, which essentially show a dead heat. The likelihood of either side winning the presidential election and both houses of Congress is considered low.
"First, the presidential race is very intense, especially in swing states," said Eric Sterner, Chief Investment Officer at Apollon Wealth Management. "Second, both candidates have very ambitious economic goals, and I highly doubt that either of them can fully achieve these campaign promises unless their party wins the White House, Senate, and House of Representatives."
Jonathan Capplis, CEO of hedge fund research firm PivotalPath, said that hedge funds are taking a wait-and-see approach to the election, waiting for a clearer picture before making significant political-related investment bets. This approach has been effective so far this year. PivotalPath's data shows that as of the end of September, US long-short hedge funds have achieved a return of 11%, ranking in the top 25% of nine-month median rolling returns since 2010.
Capplis said, "Most funds are more likely to lean towards continued market growth rather than significantly reducing exposure due to the still uncertain outcome of the US election. Identifying the impact of Fed rate cuts on investments is much easier than the vague statements from the Trump or Harris campaign teams."
Meanwhile, compared to levels over the past year, US stock market option volatility is relatively high, indicating that traders are taking a defensive stance. However, derivatives experts say that there is almost no evidence to suggest that this is primarily due to the election On the contrary, options trading is mainly driven by short-term catalysts such as the upcoming release of non-farm payroll data, high volatility in Asian markets, and geopolitical tensions.
Of course, this does not mean that election trading cannot be done now. However, portfolio managers and strategists advise investors to focus on specific stocks and industries rather than broad market indices.
UBS's trading desk recommends buying shares of regional banks, stating in a report to clients this week that the so-called "Trump trade" is making a comeback, with Republican administrations generally seen as favorable to industries with strict regulations such as finance and healthcare.
Energy is another popular election trade, with a Trump victory seen as beneficial for traditional energy producers, while a Harris win is seen as favorable for the clean energy sector.
Of course, there is also the option of being patient. Some professional investors suggest that those planning long-term investments in the market should ignore rumors, wait for the results, and then make appropriate decisions based on all available information. Joseph Caplan, portfolio manager at Caplan Capital Management, said:
"While certain industries may face greater headwinds or tailwinds during different government administrations, there are ample reasons to avoid large-scale portfolio adjustments."