A 'red wave'--where Republican candidate Donald Trump becomes president and Republicans control Congress--would be the most positive result for the US dollar

A Kamala Harris victory in November’s U.S. presidential election is viewed as more favorable for Treasuries and less beneficial for stocks compared to a win for Donald Trump, according to a Bloomberg Terminal subscriber survey.

Half of the survey participants indicated they would increase their equity exposure if Trump wins, while only 28% said they would do the same if Harris becomes president. Conversely, more than a third of respondents would reduce their stock holdings should Harris prevail. Meanwhile, nearly half of the 340 respondents said they would cut their bond exposure in the event of a Trump victory, whereas 23% would do so if Harris wins.

Institutional investors believe that a Trump-led White House under Republican control could have a larger impact on financial markets than Harris maintaining Democratic leadership. About a third of the participants said they would keep their equity exposure unchanged if Harris wins, compared to 24% if Trump does. Roughly half plan to hold steady on bond stakes under Harris, compared to 37% under Trump.

The MLIV Pulse survey, conducted from Sept. 9-13 during the Trump-Harris debate week, revealed that participants, including portfolio managers, traders, and economists, perceive clear differences between the candidates. Still, 54% of respondents said they hadn’t yet adjusted their portfolios for the election, with the rest evenly split between favoring one candidate over the other. Most respondents answered the survey during or after the debate.

Historically, equities have tended to rise regardless of the sitting president. Data from Sam Stovall, chief investment strategist at CFRA Research, shows that since 1945, the S&P 500’s average annual price return has been 11% under Democratic presidents and 7% under Republicans. Only George W. Bush, one of the last six presidents, saw the S&P 500 decline during his term, largely due to the Great Recession.

Listen to the “Here’s Why” podcast on Apple, Spotify, or wherever you listen. Declining inflation and the potential for the Federal Reserve to cut benchmark interest rates as early as this week have helped U.S. Treasuries advance in 2024. Almost half of Pulse respondents believe bond prices will continue to rise over the next presidential term.

While looser monetary policy typically leads to lower yields and higher bond prices, ambitious fiscal policies can have the opposite effect. Both Trump and Harris are expected to increase federal borrowing. Trump’s plan to make the 2017 tax cuts permanent could push the debt-to-GDP ratio to 142% over the next decade, which would be about 20% higher than the level at the end of World War II, according to Bloomberg Economics.

Most survey participants expect the U.S. to avoid a sovereign ratings downgrade under the next president, an event that has only occurred twice in the country’s history.

About two-thirds of investors believe U.S. stocks will outperform their global counterparts over the next four years. The recent surge in U.S. stock market performance has been largely driven by excitement around artificial intelligence. Within the U.S. market, tech giants like Nvidia Corp. and Apple Inc. are expected to continue leading the charge.

The MLIV Pulse survey was conducted among Bloomberg Terminal users worldwide. Terminal readers interested in future surveys can sign up by typing NSUB PULSE.

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