Investors should prepare for significant market moves in the coming days. That’s what UBS warns in its analysis of the US election, but it also sees potential opportunities to build positions in stocks, China, bonds and gold.
According to UBS US stocks are attractive and should be supported by the growing economy, lower interest rates and support from artificial intelligence, regardless of the election result.
Investors should be ready to take advantage of market dips to build long-term positions, particularly in the technology, utilities and financials sectors.
On Chinese stocks, UBS reckons a Harris win would allow investors to focus on an improved fundamental picture, while any substantial market correction under a Trump victory could present buying opportunities.
In fixed income, bond yields have risen significantly in recent weeks, but according to UBS today’s increased yields offer an opportunity to lock in attractive yields and improve portfolio diversification in the face of lower interest rates, regardless of who wins the elections.
In currencies, although the dollar could strengthen in the short term if Trump wins, UBS expects the dollar to depreciate in the medium term regardless of the winner. So he suggests investors consider using power periods to diversify dollar exposure to other G10 currencies.
Finally, he believes that gold remains a valuable hedge against geopolitical and economic uncertainties and expects further upside in both the Trump and Harris scenarios. While a Trump victory could accelerate gold’s rise, a Harris win would likely see a more steady rise.
Stock Diversifications
While some equity market volatility this week is inevitable, UBS does not expect the most likely election results to change its 12-month position on US equities. He expects the S&P500 to rise to 6,600 by the end of 2025, a return of around 15% from current levels, due to expectations for US growth, lower interest rates and continued structural boost from AI.
He also expects these market drivers to persist regardless of who wins the US election. On a sector level, her preferences include technology, utilities and financials.
In tech, a Trump victory could have a slightly negative impact in the short term, as markets may fear the impact of tariffs on the earnings of hardware and semiconductor companies. However, he does not believe that this will affect structural growth in the medium term. Spending on AI infrastructure remains strong as businesses experiment with AI use cases and companies race to gain leadership positions.
UBS also expects that semiconductor components needed for artificial intelligence will likely remain in tight supply next year. A Harris win would largely be a status quo result that shouldn’t significantly change investor expectations.
Parts of utilities could experience a small relief rally in a Harris victory, as continued government support for renewables would be more assured.
Conversely, companies with leveraged renewable energy could face some pressure in a Trump victory. However, even in this scenario, demand for renewables will likely remain strong as companies, states and municipalities focus on decarbonization goals.
More fundamentally, UBS expects significant growth in AI data centers that will likely lead to strong growth in energy demand and rising energy prices. In addition, he believes that the defensive characteristics of the sector should offer protection to a portfolio should concerns about economic growth arise.
The U.S. financial sector could face short-term headwinds under a Harris victory as investors price the benefits of deregulation from a Trump victory. However, UBS believes the medium-term outlook will remain positive, supported by a robust economy and a potential pick-up in activity in areas such as corporate lending and M&A due to the Fed’s rate cuts. A Trump victory could herald deregulation and would likely be an immediate positive catalyst for the industry.
Higher bond yields are an opportunity to prepare for lower interest rates
In recent weeks, a combination of stronger US economic growth data and market anticipation of a possible Trump victory has driven bond yields higher across the curve. Now UBS believes the stakes are very high, regardless of who secures the presidency.
Her forecast for 10-year yields is 3.5% for June 2025. While she would expect yields to be somewhat higher than 3.5% under a Trump presidency, she still expects positive bond yields going forward twelve months.
He also does not expect the election outcome to shift the Fed from a path toward lower interest rates, and inflation remains on a downward trajectory.
UBS has pointed out that investors should “prepare for lower interest rates” using exposure to medium-term fixed income. Today’s elevated bond yields provide investors with an opportunity to do just that and use cash to lock in returns while achieving strong portfolio diversification.
Potential opportunities arising in China
UBS expects the outcome of the US election to lead to significant near-term volatility in Chinese stocks. While both candidates are likely to be “tough on China,” fears of a potential 60 percent tariff on Chinese imports into the U.S. proposed by Trump could have a significant impact. However, short-term volatility could create an opportunity for long-term investors. A Trump victory would be negative for the profits of Chinese companies.
But the risks are known. Chinese stocks are already cheap. A Trump victory could prompt Beijing to spend more aggressively on stimulus measures. And US-China trade has already declined significantly during Trump’s first term. Additionally, UBS does not expect a 60% tariff to be ultimately implemented, in the baseline scenario, but for Trump to negotiate with Beijing, potential tariffs in a more targeted range.
Therefore, if Chinese markets were to fall 10% or more in the event of a Trump victory, UBS would see that as enough to consider adding to Chinese equity positions.
The effect on the dollar
UBS reiterates that it has a negative medium-term view on the dollar, forecasting parity with the euro to reach 1.16 by September 2025. Basically it believes that a combination of an overvalued dollar, a shrinking yield advantage against other currencies and significant twin deficits, fiscal and current account, are likely to weigh on the currency regardless of the winner.
But UBS would expect the dollar to be somewhat stronger under Trump than Harris. More pro-growth policies, possibly higher interest rates and tariffs could all give the dollar a boost. However, from today’s levels he would expect the dollar to depreciate regardless of the winner.
Therefore, investors should prepare to use periods of dollar strength that may occur after the election to diversify or hedge currency exposure and mitigate the risk of dollar depreciation.
Gold: Higher, faster or slower
Gold prices have risen sharply this year and from current levels UBS expects further gains regardless of who wins the White House, although the outcome of the election could affect how quickly it reaches its target of $2,900/ ounce.
Should Trump win, UBS would expect gold prices to rise sharply as markets price in potentially higher rates of inflation and geopolitical uncertainty.
If Harris wins, he would initially expect a softer reaction in the gold market. However, he would expect gold to recover thereafter as markets refocus on the dollar and interest rate outlook, as well as strong demand from investors and central banks.
SOURCE: ot.gr
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