Core investment conditions won’t be reversed by volatility

by Rick Lacaille, Global Chief Investment Officer at State Street Global Advisors.

The US election has seen a tremendously large turnout, great participation is a great result. Both candidates at this stage often claim victory, but it’s rare that we see an invocation of the court system at this point, and we expect quite a lot of market volatility. However, the core investment conditions that we see for the next 12 months won’t be reversed by this volatility. The monetary and fiscal stimulus that we’ve seen so far to counter the pandemic is yet to work its way fully through the system, and we expect that it will be one of the big influences on investment conditions in the next 12 months.

From an investment perspective high quality equities and staples are expected to do better. While areas like healthcare may still do well, particularly if Congress is likely to be split and there is a need for a lot of consensus building before more radical policies take root, we should avoid outright bets, for example, on renewables or the oil and gas sector.

We should also position ourselves for a bit of a lower dollar and a little bit more in terms of medium term inflation, as we are in a deflationary environment. These are conditions which, with monetary and fiscal stimulus in place, are favourable toward equity investment in the medium term. We should also bear in mind that the volatility that this presidential election still can cause as we wait patiently for a final result, and a risk budget is very important.

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