From Political Risk to Political Alpha – Navigating the US Election

As we approach the end of 2024, we face the biggest election of what is a global election year. With a focus on the US and US capital markets we look back over the year and take stock of the market and economic predictions that were made; analyzing those that came to fruition and those that failed to materialize. 

Looking back on the year, it’s been marked by unpredictability and tough calls. The relationship between interest rate markets and risk markets has been particularly notable. Cash has been the dominant choice in a high-rate environment, but with expectations of future rate cuts, how much longer will this preference for cash continue?

The US economy has however powered ahead, whilst China stuttered, equity markets rallied albeit only for jitters over non-farm pay roll numbers, the tech rally and the unwinding of the yen carry trade to spark a bout of extreme volatility, sending bond yields lower. The inflation bogeyman began to be tamed - while nations’ fiscal positions stretched, and indebtedness grew. 

So, as we face the biggest election uncertainty what can investors do to navigate the political risk of the US election, what impact have news flow and polls had on the yield curve, what will be the impact on FI sectors of red or blue, how will the USD fair, and finally, how should fixed income portfolios be positioned to turn US political risk into political alpha?

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