Populism/Inequality

Favor defensive sectors, low-beta assets, and long-duration bonds until the election uncertainty is lifted one way or another over the next five months.

The stock market will suffer a setback from the weakening labor market and a rebound in US and global policy uncertainty.

Mexico’s election and the US election pose short-term and potentially medium-term risks to Mexican financial assets. But unless the ruling party wins a double supermajority, we remain structurally overweight Mexico relative to global stocks excluding the United States.

Investors should prepare for economic data to weaken even as policy uncertainty and geopolitical risk skyrocket ahead of the US election.

In the near term, favor oil and oil producers outside the Gulf Arab states. Over a 12-month horizon, favor US and North American equities, defensive sectors over cyclicals, and safe-assets. Within cyclicals, stick to energy and defense.

Investors around Europe and North America are concerned that the stock market is increasingly overbought and vulnerable to exogenous risks. We agree and have good reasons to fear that festering geopolitical risks and the US election season will deal negative surprises.

The US Presidential election is eight months away. In this report, we will be looking at what is left of President Biden’s political capital and his room for actions in the next few months which may include market-negative actions such as the recently announced investigation into Apple.

Democrats are still slightly favored for reelection as the incumbent party is presiding over a growing economy. However, Biden’s strong showing in the primary election is not lifting his popular approval yet, and that is a worrying sign. Policy uncertainty should rise sharply, which is marginally negative for the stock market.

In this BCA Special Report, we ask what policies investors should expect if Donald Trump wins the 2024 Presidential election. The answer is that a second Trump term would be much less positive for risky assets than the first. While the US will remain democratic and geopolitically preeminent no matter the outcome of the 2024 election, a second term Trump administration would likely oversee large budget deficits, continued wealth inequality, labor shortages, high import prices, and an erosion of checks and balances, possibly including at the Federal Reserve. Trade policy under a second Trump presidency represents the greatest cyclical risk to investors, and the sequencing of policies in general will be important to monitor. An early legislative priority of immigration over tax cuts, alongside the rapid imposition of new tariffs, would be the worst alignment for risky assets.