The big investing question for the week has to be this: do we place our market bets on Cup Day — one day before we see how the Yanks vote or do we wait and see what this very unusual country serves up November 5?

If you had to punt or wanted to punt before the US poll’s results, then like the Cup, it’s worth looking at not only the recent form guide but also the history of elections in the United States and what those elections can do to stocks.

This is what the UK’s Betfair told us over the weekend:

1. A shock poll shows the Democrats potentially could win a Republican stronghold in Iowa.
2. However, Trump remains favourite, but odds have changed dramatically in recent days.
3. Harris was nearly 2/1 early in the week but is now 6/5, which means either one could win, though Trump has the smallest of leads.

So, Iowa will be a must-watch state on Wednesday our time as the US election result unfolds.

If we look at what Donald Trump or Kamala Harris could do to hit stocks, it gets down to the following:

1. Trump is threatening a 10-20% tariff on all imports.
2. China could cop a 60% trade slug if Trump wins, and he doesn’t need Congress approval to do this!
3. The world would reciprocate and that would mean global inflation would rise and rate cuts would be curtailed. We actually could see rate rises some time in 2025, when cuts are expected.
4. Trump could cut the company tax rate from 21% to 15% and pressure other countries to trim their tax rates. We are the 3^rd highest when we compare our company tax rates to similar countries, so this would pressure future local governments to tweak our rates down. This would be good for stocks.
5. Because he is harder to read, Trump could bring a lot of uncertainty to stock markets, especially if he loses and then proceeds to contest the results.
6. Harris has talked about raising the company tax rate to 28% to be more similar to other countries’ tax rates and the market wouldn’t like this.
7. She would have a bigger commitment to alternative energy solutions and would be a much more pro-green leader of the US. This would help some stocks and hurt others. Harris could be good for Electric Vehicles and lithium plays.
8. That said, there is a feeling that she would have policies similar to Biden and under Joe, US stocks have risen over 60% since the country learnt that Biden had beaten Trump in November 2020.

S&P 500 Index

That’s the current form, so let’s look at the history, which not only has surprising revelations but tells us something we should hope for if we want inflation not to spike, interest rates to fall and stocks to rise.

AMP’s Shane Oliver looked at the history of US election results and what kind of outcome is the best for stock players. The chart/picture above paints a thousand words, and this is what it tells us:

1. A Democrat President with no total control of both the Senate and/or the House, has been the best for stocks between 1927 and 2023. The average return per annum was 17%!
2. A Republican President and no total control returned 10% per annum.
3. If a Republican President had total control the average return p.a. was 9%.
4. While a Democrat President with total control averaged a 13% return!

If you can look past your political bias, hoping for a Harris win with no total control would be the best outcome for stocks, and would make me want to get on board with stocks for the longer-term likely positive trend.

Remember, the beauty of no total control for a US President means silly and aggressive tax changes would be harder to get passed by the Congress.

However, if Trump wins and doesn’t have total control, then he still could pursue his tariff policies that could really hit stocks sometime in 2025 or 2026, when we come to understand the extent to which he wants to play hardball with his trading partners.

Right now, the positivity we’re seeing for stocks is because the job market on Friday said the US economy isn’t booming more than expected. This means interest rate cuts are still on the way, but at the same time the PCE index reading said inflation was only 2.1%, reinforcing the belief that the US has a Goldilocks soft landing, despite11 interest rate rises.

For stocks, a Harris win without total control of the Senate and House would neither threaten big tax changes nor a tariff war that could send global inflation up. That said, the market wouldn’t want to see a Democrat win with total control but the fact that stocks went up nicely on Friday suggests poll pundits can’t see the Democrats, or the Republicans, pulling off a clean sweep of the Presidency, the Senate and the House of Representatives.

If that happens, there would be a sell-off, which I’d prefer not to see!

And because the different stocks could be positively or negatively affected by whoever wins, the best way for a speculator to play the election before Wednesday locally, would be to invest in indexes or well-performing funds that give you a diversified play on the US. I like IHVV, which is a hedged ETF based on the S&P 500, WQG and WCMQ, Vinva, Magellan’s MHG and others like it.

This Morningstar link lists some of the better OS-based funds:

https://www.morningstar.com/funds/best-international-stock-funds

 Important informati on: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.